Addentax Group, a Chinese apparel manufacturing, logistics service and epidemic prevention supplies conglomerate, debuted on Wall Street on Wednesday with a record 13,031% rise above its initial valuation. The shares rose from the $5 initial offering price to $656 on the first day of trading, while the price fell more than 60% on Thursday.
The appetite of investors came to value the unknown company created in 2001 with a capitalization of more than 20,000 million dollars (19,995 million euros). This placed it above large Spanish firms such as Repsol or Endesa (with a market value of around 18,040 million), despite only having 126 employees and generating losses of more than 3 million dollars in 2021.
This is not an isolated case: in August, two other Chinese companies debuted on Wall Street with increases of up to 21,400% in a few weeks in the case of the technology AMTD Digital and 6,149% for the financial consultancy Magic Empire Global. The optimism of investors with these companies contrasts with the pessimism that has dominated the global market in recent months, which has led the S&P 500 index on Wall Street to register this year the worst semester since 1970.
Addentax, AMTD Digital and Magic Empire Global open a new entrance to the largest Asian market for investors, as only 261 Chinese companies were listed on US Stock Exchanges in mid-2021, according to the US Government. China presents one of the highest growth rates for 2022, with 3.3% according to the forecast of the International Monetary Fund, above the estimate for the most advanced economies.
tensions
The rises also contrast with the escalation of tensions between China and the United States. Chinese authorities have focused on domestic companies that want to list outside the country, while US regulators have increased their scrutiny of Chinese firms.
In this context, the US microchip manufacturer Nvidia reported yesterday that Washington limited its sale of processors designed for artificial intelligence development to Chinese companies. This decision seeks to limit the comparative advantages of certain Chinese firms. This veto comes after the trip of the president of the House of Representatives, Nancy Pelosi, to Taiwan in early August. This diplomatic disagreement also triggered five large companies controlled by the Chinese government to cease trading on the New York Stock Exchange. This group includes PetroChina, the largest Asian oil and gas producer, and China Life Insurance Company, the leading insurer in the Asian country.
Last Friday, US and Chinese regulators gave the markets reasons for optimism: US authorities will be able to audit the accounting books of Chinese companies listed on Wall Street. This pact allows more than 160 Chinese companies to avoid the risk of being delisted from US stock indices.
The headquarters are located in tax havens
▶ Brochure. Addentax, Magic Empire Global and AMTD Digital warn in their share issuance prospectuses that they are companies registered in tax havens, although they carry out their operations through subsidiaries established in China.
▶ Forecasts. Addentax warns that “Chinese laws and regulations that govern the commercial operation are sometimes vague and uncertain”, so it does not rule out a possible regulation on its operations that limits its growth.
▶ Meme actions. The risks announced by Addentax and other Chinese groups have not stopped the interest of investors, particularly retail savers. This reaction has provoked comparisons with the frenzy of the so-called “meme actions” in 2020 and 2021, when the interest of thousands of small investors, mobilized through alternative platforms and social networks, shot companies on the brink of bankruptcy on the stock market. The rise in the price of the three Chinese companies even exceeds the record of the video game company GameStop, an icon of this movement, whose price increased by 1,800% at the beginning of 2021.
▶Hong Kong. The Atlantic Council think tank warns that Beijing could increase its pressure on domestic companies to list on the Hong Kong Stock Exchange as an alternative to New York. This decision would limit the power of the United States and give greater power to Chinese regulators.
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