Rebound of US-listed Chinese stocks expected to continue, bring more IPO

Chinese stocks traded in the United States have been rebounding over the past several months, boosted by beneficial economic and policy environment.

Analysts believe the China-based stocks will continue the upward trend, which may lead IPO of Chinese companies in the United States out of dark.

CHINA-BASED STOCKS REBOUND

The recent rally of Chinese stocks traded in the U.S. has drawn market attention with e-commerce and real estate sector leading the charge.

The Bloomberg China-U.S. Equity Index of the most-traded Chinese stocks in the U.S. has jumped about 18 percent from the lowest level in June.

"On average, Nasdaq listed Chinese companies are up 48 percent than this time last year and 20 percent over the last six months," said Frank Giglio, a general manager responsible for business across the Asia-Pacific region at NASDAQ OMX Group.

Giglio pointed out that YY Inc., the recent IPO company, traded over 300 percent above the IPO price, and Nasdaq's largest issuer Baidu.com is up 45 percent over the last six months; Ctrip.com is up over 100 percent on year; Sina Corp and NetEase Inc. well over 50 percent.

"That is phenomenal," said Giglio.

Another sector that's making leaps and bounds is the real estate sector. SouFun Holdings Limited and E-House (China) Holdings Limited, respectively, soared 70 percent and 58 percent from their lowest levels in June.

A lot of people are taking a second look at China particularly with the possibility of QE3 tapering soon, which weighed on U.S. stocks, said Managing Director at J. Streicher & Co. LLC, Mark Otto, who has years' experience in trading Chinese stocks.

Otto said that "one thing that I do find encouraging is that we are starting to see it's spreading out to other sectors, and it seems like the risk-on is back for China."

MULTIPLE BENEFICIAL FACTORS

The rebound of Chinese stocks traded in U.S. was boosted by multiple factors, including improvement of economic and policy environment, as well as performance of individual companies.

U.S. stocks market has really run up since this year and has broken records time and time again, which helped lift investors' confidence.

Moreover, when people are concerned over China's economic slowdown, the latest data showed growth of China's imports and exports both turned positive and industrial output growth accelerated in July.

"Macro-economic data have shown China is rebounding and all sort of signs indicated that measures the government's been taken are taking effect," said Otto.

The China-based stocks have also benefited from the agreement between China's regulators and the U.S. Public Company Accounting Oversight Board (PCAOB). which provided a mechanism for them to request and receive assistance from each other in obtaining documents and information.

Cao Yue, partner at law firm Eaton & Van Winkle LLP, said that the agreement can help reestablish U.S. investors' confidence in Chinese companies, and it will also prevent some short-sellers from trying to take advantage from lack of information exchange between regulators of the two countries.

China's central government has recently launched a series of measures to promote domestic consumption of solar products and information technology products and services, which will certainly benefit the two sectors.

In addition, many Chinese companies reported strong quarterly earnings and they have also forecast strong guidance numbers.

Meanwhile, recent mergers between some e-commerce companies also pushed up their stock prices, for example, the deal between Alibaba.com and Sina Weibo.

MORE CHINESE COMPANIES IPO IN U.S. EXPECTED

Analysts believe that the China-based stocks will continue to advance and this may lead more Chinese companies to conduct IPO in the U.S, which has been sluggish in the past two years.

Otto said as soon as the Chinese macro data start actually showing signs of bottoming out and that's when stocks actually start taking off.

However, risks still exist. Otto said there are a lot of speculations on China's economy and there are still calling for "hard landing" and real estate sector risks.

Despite the risks, Otto said: "I'm bullish on China and I have confidence about the new leadership ... It seems they will go trough the short-term pains to achieve realistic goals."

Cao said the threshold to be listed in U.S. market has been lifted, and the number of Chinese companies conducting IPO is small, so they can attract attention of U.S. investors and a large amount of capital, though investors are still cautious about Chinese companies.

Giglio from Nasdaq said U.S. investors have an appetite to diversify their portfolio and investing in China's companies can geographically diversify their portfolio.