While most U.S. equities are rallying on Election Day, a number of Chinese tech stocks are selling off after payments giant Ant Group’s anticipated Hong Kong and Shanghai IPOs were suspended.
E-commerce giant Alibaba (BABA) - Get Alibaba Group Holding Ltd. Report, which owns about a 33% stake in Ant and is due to report earnings on Thursday morning, is down 5.8%. Tencent (TCEHY) , which among many other things owns the WeChat Pay payments service, is down 2.6%
Momo (MOMO) - Get Momo Inc. Report is down 3.2%, Baozun (BZUN) - Get Baozun Inc. Report is down 4.2%, Weibo (WB) - Get Weibo Corp. Report is down 2.6% and Sohu (SOHU) - Get Sohu.com Ltd. Report is down 1.2%.
E-commerce firm Pinduoduo (PDD) - Get Pinduoduo Inc. Report is bucking the tide, rising 7.2% after catching an upgrade to Buy from Goldman Sachs. So is electric car maker Nio (NIO) - Get NIO Inc. (China) Report, which is up 5.1% amid rumors that it plans to enter the European car market in 2021.
Ant’s stock offerings were halted by the Hong Kong and Shanghai exchanges after controlling shareholder Jack Ma (also the co-founder and former chairman of Alibaba) was summoned to a meeting by four different Chinese financial services regulators, along with Ant chairman Eric Jing and CEO Simon Hu.
According to CNBC, the Shanghai Stock Exchange has issued a statement in which it says Ant has reported “significant issues such as the changes in [the] financial technology regulatory environment,” and that such issues “may result in [Ant] not meeting the conditions for listing or meeting the information disclosure requirements.”
Ant, for its part, has promised to return the funds provided by investors who had subscribed to its IPOS, and says that it will “properly handle the follow-up matters in accordance with applicable regulations of the two stock exchanges.”
Ant was set to raise more than $34 billion through its planned IPOs. The suspension of its offerings, which comes after Chinese tech companies such as Alibaba, JD.com (JD) - Get JD.com Inc. Report, NetEase (NTES) - Get NetEase Inc. Report and Baozun carried out secondary listings in Hong Kong, is serving as a reminder to investors about the shifting regulatory sands that Chinese firms have to contend with.
As it is, U.S.-listed Chinese companies -- many of which still trade at substantial valuation discounts to American peers with comparable growth profiles -- have already dealt with their share of negative legal and regulatory headlines this year.
In May, the U.S. Senate passed a bill (it hasn’t yet become law) that would ban foreign companies from listing in the U.S. or raising money from U.S. investors if they didn’t certify that they aren’t “owned or controlled by a foreign government,” and subject themselves to audits from American regulators for three consecutive years.
And in April, shares of Chinese coffee chain Luckin Coffee plunged after an accounting fraud scandal was disclosed. Luckin’s stock, which remains down more than 80% on the year, was delisted from the Nasdaq in June.