William John Market Report 17-12-21
William John assess the future of Chinese listings in public equity markets and its impact on investment banks.
WallStreet, WilliamJohn, IPO, CapitalMarkets, Equities, China, HongKong, NewYork

William John Market Report 17-12-21

William John Market Report 17-12-21

Category: Reports

Didi Chuxing, a large Chinese ride-hailing equivalent to Uber, has signalled its intention to move to the Hong Kong Stock Exchange after Chinese authorities and regulators pressured it to withdraw from the New York Exchange. Based on data security concerns, Chinese authorities including the Cyberspace Administration of China and the China Securities Regulatory Commission warned Didi from listing outside of Chinese jurisdiction and (consequent to Didi’s New York IPO) imposed draconian measures on the company. 

These measures included banning new Chinese users from using the platform and delisting all Didi owned apps from Chinese app stores, causing a dramatic drop-in user activity of around 30% and a significant collapse in the trading share price of Didi which lost around 40% of its value within two months, according to the Financial Times. Looking at the performance of Didi shares on the New York Stock Exchange since its IPO on 30/06/21:

Source: William John Analytics, Yahoo Finance. Prices taken as the closing price of each month.

Given the scale of the collapse in its public equity valuation, the company realistically had no choice but to relocate to Hong Kong – a financial centre under the jurisdiction of the Chinese authorities, in order to remedy the measures that had been imposed on the company and recover its losses in public equity. According to Bloomberg, the company is planning to delist from the New York Stock Exchange in the coming months and relist in Hong Kong around March 2022. 

The Didi scandal is likely to have a major impact on the future of Chinese listings in Western markets. As analyst coverage, valuations and market liquidity improves in Hong Kong relative to Western exchanges, valuable Chinese companies no longer need to seek the glamour of New York or London. Alongside a real development in the financial prospects of Hong Kong and Shanghai though, is a more sinister undercurrent that will dissuade Western listings completely – the power of the Chinese communist party and the lengths it is willing to go to keep Chinese enterprise and capital under its jurisdiction and ultimate control. 

If listings in Western markets are no longer appealing to Chinese companies, this will have a huge knock-on effect on the power and fees of the great institutions of Wall Street. The traditional pitch to Chinese companies that the NYSE or NASDAQ has more analyst coverage and liquidity in a deeper market no longer seems to be as robust as it once was. Furthermore, average returns on deals in New York are much higher than in Hong Kong. In fact, according to the Financial Times, over the past two years investment banks have earned approximately equal fees in each city despite New York accounting for less than half of Chinese listings. Losing out listings and business in New York will therefore dent investment banking revenue to a significant degree. 

Wall Street, however, is adaptable. Two things are likely. First, an even greater investment banking presence in Hong Kong from Western Banks to strengthen their credibility and position in Hong Kong pitching for potential deals. Second, an emergence of Chinese investment banks as serious players in Hong Kong and potentially one day – the World. 

Any opinions expressed in these documents are those of William John and are provided for information only. E&OE.