Xiaomi dials up big gains on second day of trading
It will be a relief for other tech companies gearing up for multibillion-dollar listings
Xiaomi Corp. shares soared, as the prospect of rapid inclusion in key indexes helped make up for the Chinese smartphone maker’s lacklustre market debut a day earlier.
The reversal shows the importance of securing a place in widely followed benchmarks, especially in Hong Kong, where this can open up a valuable channel to mainland China.
The stock blew past the price of 17 Hong Kong dollars ($2.84 Canadian) a share set at its $6.2-billion initial public offer- ing, one of the world’s largest this year. It closed up 13.1 per cent at HK$19, adding roughly $9 billion in market value to hit a total of $79.1 billion. The company accounted for nearly a 10th of all turnover on the mainboard in Hong Kong. It will be a relief for other technology companies gearing up for multibillion-dollar listings in the city, such as Meituan Dianping and China Tower Corp.
Late on Monday, the compilers of the FTSE Russell and Hang Seng Composite indexes said Xiaomi would join those gauges later this month. Influ- ential rival MSCI has said it would exclude the startup because of founder Lei Jun’s supervoting shares.
Joining the Hang Seng will let Xiaomi court mainland shareholders through a trading link operated by Hong Kong Exchanges and Clearing Ltd. and its counterparts in Shanghai and Shenzhen. “Some investors are betting on further gains as Chinese investors will soon be able to trade the stock via the Stock Connect scheme,” said UOB Kay Hian executive director Steven Leung.
Xiaomi had sought to become the first issuer of so-called Chi- nese depositary receipts, selling these securities alongside its Hong Kong shares, but postponed the plan. The Stock Connect scheme, which hosted $2.1 billion of daily southbound trading last month, offers another route to mainlanders who will be familiar with the company’s products and brand.
The company also received a bullish recommendation from Macquarie analysts, who assigned a target price of HK$30, forecasting annual net income growth of 40 per cent for the next three years. The IPO of the world’s fourth-largest smartphone maker had been marred by difficulties, including a Chinese market slump. Some analysts and investors queried its business model and valuation expectations.
Shaunak Mazumder, a global equity fund manager at Legal & General Investment Management in London, said he hadn’t participated in the IPO as he believed it was overvalued.
“You have to believe they can both increase prices and raise market penetration. Historically that’s been pretty difficult,” said Mr. Mazumder. “There are some question marks about how fast the global smartphone market can grow from here.”