Nasdaq Moves To Limit Chinese SMB IPOs

Nasdaq is putting the heat on initial public offerings (IPOs) of small Chinese companies, Reuters reported on Sunday (Sept. 29).

Nasdaq — an electronic exchange in which stocks are traded through an automated network of computers instead of a trading floor — is tightening restrictions and making approvals more difficult.

Attempts by Nasdaq to curtail stock market flotations comes on the heels of IPOs raising the majority of funds from Chinese relationships over U.S. investors.

“One critical quality of our capital markets is that we provide non-discriminatory and fair access to all eligible companies,” a Nasdaq spokeswoman told Reuters. “The statutory obligation of all U.S. equity exchanges to do so creates a vibrant market that provides diverse investment opportunities for U.S. investors.”

The Nasdaq spokeswoman declined to comment specifically on the impact of the changes in the listing rules on the U.S. IPOs of small Chinese companies.

There have been 33 IPOs for Chinese companies listed on the New York Stock Exchange and Nasdaq this year, the most since 2010 when there was 39.

The companies include iQiyi, a video platform company; Nio, an electric car maker; and Tencent Music Entertainment.

“The level of new issuance of Chinese companies in the U.S. is unusual given the escalating trade tensions and weakness in the Chinese markets,” said Daniel Delany, managing director at CIBC Private Wealth Management. “That said, longer-term, Chinese companies have benefited from U.S. listings, with the validation of more institutional shareholders and higher valuations.”

The high number of listings did not necessarily translate into strong performance, as investors saw losses of about 16 percent on those stocks.

“The U.S. listings of Chinese companies have not performed well in 2018,” Delany said. “The biggest single reason is, simply, the weakness in the Chinese markets. Additionally, many of these stocks have limited free float and newer shareholders, both of which can exacerbate the selling pressure.”

Chinese retail sales were the slowest in 15 years in November, and factory output was also down. This data exacerbates fears of a troubling outlook for the global economy, and concerns about the U.S.-China trade war and worldwide growth slowdown have sparked selling.