September 18, 2018 / 6:39 AM / 2 years ago

Breakingviews- Chinese IPOs bring casino trading to New York

Eric Siliang Tan, (C) Chairman and CEO of Qutoutiao Inc., poses with company officials during the company's IPO at the Nasdaq MarketSite in New York City, U.S., September 14, 2018. REUTERS/Brendan McDermid

HONG KONG (Reuters Breakingviews) - Chinese startups are bringing mainland volatility to New York markets. Tencent-backed news aggregator Qutoutiao more than doubled on its first day of Nasdaq trading, before tumbling on the second; $9 billion luxury electric-car maker Nio see-sawed almost as much. Small free floats and untested business models are partly to blame, but the erratic behaviour will hurt future debuts.

Qutoutiao, an unprofitable startup that doles out cash rewards to its readers, priced its shares at the bottom end of a marketed range last week. Investors, it seemed, were put off by a lack of key operating licenses, and other signs of a rushed sale. And yet the shares rose nearly 130 percent from its listing value on the first day - only to then crash 40 percent in the next session. Nio, China’s answer to Tesla, had a similar ride: it priced at the low end of an ambitious range and had a damp start, but its shares soared nearly 80 percent on the second day. In both cases, the oscillations more frequently seen in mainland exchanges triggered trading halts.

One credible explanation for the roller coaster effect is the small amount of shares actually sold by Chinese debutants, either because of stubborn founders, weak investor demand or both. Indeed, just 16 percent of Nio was sold, while Qutoutiao put only roughly 5 percent on the market: that amplifies market mood swings. Overall, the eight largest Chinese companies making U.S. debuts this year sold between 4 and 19 percent of their shares, according to data provider Dealogic. That compares to between 14 and 86 percent for the top non-Chinese companies listing on the Nasdaq and the NYSE. Of course, weak pricing relative to early headlines will have contributed too.

Either way, trading with Chinese characteristics has damaging consequences. With even companies like $27 billion shopping app Pinduoduo whipsawing this year, large institutional investors may be put off further listings, making it ever harder to build credible shareholder books. That only accentuates the gambling problem further.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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