Luckin Coffee’s sudden admission of financial fraud has touched off a short-selling bonanza for US-listed Chinese stocks. In the weeks since it admitted to fabricating over half of its claimed revenue, a short-seller firm called Wolfpack Research made similar accusations against iQiyi, while TAL Education has admitted to smaller-scale inflated figures.
What does this mean for everyone else? How badly will these cases affect the reputation of other US-listed Chinese stocks? To answer these questions, TechNode has analyzed 31 US-listed Chinese tech companies.
Editor’s note: A version of this first appeared on our sister site, TechNode Chinese. Below is a translated summary. Some of the data used comes from Wind, a financial data services company.
In US markets, e-commerce platforms are the heavyweights. Alibaba alone is eight times bigger than runner-up JD, and you don’t see anything but e-commerce until Netease at number four. You might notice the absence of Tencent—it’s listed in Hong Kong.
Share prices of e-commerce and edtech startups have boomed as more people are relying on online services during the Covid-19 pandemic.
Despite short-sellers’ fraud accusations, edtech startup GSX Education has almost doubled its market cap in the last year to $4.6 billion. TAL Education has also seen a 48% increase whilst streaming site Bilibili has gained 65% or $3.6 billion.
E-commerce has made strides, with second and third-tier city focused Pinduoduo leading the pack with a $25 billion increase, or 100% compared to last year. At 18% Alibaba’s growth might not seem so impressive in comparison, but it amounts to a staggering $85 billion.
Tencent Music lost $10 billion in market cap over the past year—a hefty hit, but at 37%, it is far less than Baidu’s eye-watering 41% $24 billion decline.
Of the firms that have released 2019 reports, Netease, JD, and Trip.com led the pack (Alibaba releases its annual reports in May). Leaving aside allegations of inflated revenue, iQiyi was the second-worst in the sample. The only bigger loser was Nio.
TechNode has identified nine US-listed Chinese companies whose stocks have fallen below their original issue price. Of them, 36Kr has fallen the most, losing 76% of its value. It is closely followed by Luckin Coffee with a 74% decrease.
Last week, iQiyi was trading below its $18 IPO price after accusations of fraud. It started a moderate rebound late on April 14.
Even as tensions between the two countries have grown, the US has attracted increasing numbers of Chinese IPOs. In 2018, 42 Chinese companies went public in the US, the most since 2006. The next year, a still-strong 38 firms listed in the US.
But short selling frenzies may change this trend—a previous wave of Chinese short sales, starting with Muddy Waters’s famed 2010 attack on Orient Paper, helped tank the 2011 IPO count from 22 to five. It took until 2017 for the number to pass 20 again.