In just four trading days, Renren dropped almost below its IPO price. Yesterday, the stock fell another 8% to close at US$14.75, which is almost equal to IPO price of US$14.

The so-called China’s Facebook seems to be losing its luster.  In fact, as we have previously noted, besides a valuation too high, the company has other problems, too.  And it is doubtful whether it is really “China’s Facebook”.

But what is pushing the Chinese internet stock, including Renren, beyond their fundamentals, to ridiculous high valuation, at the first place??  I read a comment from SeekingAlpha, a popular U.S. website on trading stock.  The post is probably from a typical U.S. trader:

Every single chinese IPO pullback has been a buying opportunity. Sure it looks scary…..but the scary trade is usually the right trade.

Wait for it to base around the 11-12 dollar range…..and then watch it break prior highs.
I actually don’t know crap about this company, and I really don’t want to…..but I’ve seen this in the charts before. YOKU went from 48 to 28, before ripping hard to 60…left so much on the table after I sold at 50. 

Let the shorts worry about valuation and other nonsense….I just make money.
NFLX, PCLN, OPEN, LULU….keep squeezing those shorts till they scream!!!

– “The Champ”

The trader “The Champ”, said, he “don’t know crap” about Renren.  Based on his past experience (“I’ve seen this in the charts before”),  he believe Renren will rebound and make new highs.

Clearly, what Renren actually does, this U.S. trader do not care at all.  He just trading on momentum.  As the previous Chinese internet stock has made him money, he believes Renren will be a winner, too.

I believe, a lot of U.S. traders of Chinese internet stock are like “The Champ”.  And that is why their valuation is not base on fundamental, but only on perception (China’s Youku, China’s Facebook, China’s Twitter) and trading momentums.

The point is most clearly illustrated in the trader’s remark, “Let the shorts worry about valuation and other nonsense… I just make money.”

Sherman So

Author of Red Wired: China's Internet Revolution, the first book to completely survey the nature of China's internet. (http://redwiredrevolution.com/) She previously was the lead China technology reporter...

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3 Comments

  1. Surely it’s the major institutional investors that make up for much of the demand? They wouldn’t be doing this, would they?

  2. You would be surprised how many institutional investors who act like a day-trader

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