Chinese IPOs in the US to be hit by declining valuations

The sharp plunge in valuations of Chinese companies that went in for IPOs in the US in recent weeks is raising concerns about the decline in valuations of future IPOs from the world's fastest-growing economy.

Nearly a dozen Chinese companies that went in for a float in the US markets of late have seen their valuations take a beating.

According to data compiled by Bloomberg, Chinese companies that went public in the US in 2011 have underperformed the Standard & Poor's 500 Index by six per cent on average from their first day trading through May 17. In contrast, all companies that had American IPOs this year outperformed the index by 5.5 per cent.

But nearly a dozen companies from China that listed in Hong Kong in 2011 returned an average of 5.7 per cent since their first trading date.

Josef Schuster, founder, Ipox Capital Management, LLC, Chicago, told Reuters that despite the low returns, the US remains the only option for Chinese high-tech start-ups backed by venture capital. ''The US IPO market has always been more speculative and thus more receptive of these Chinese companies that will not be able to go public elsewhere,'' said Schuster. ''Most of the internet companies came to list here because people are more willing to buy the idea and believe in higher valuations after seeing legendary successes such as Baidu.''

The company that operates China's most popular search engine, raised $122 million in August 2005; the shares shot up by 354 per cent on the first day of trading, but declined over the following months. But now, Baidu's shares are trading at almost 50 times its debut price.