Big Chinese Share Sales Are Luring Back Long-Term Investors
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(Bloomberg) -- Global long-term investors are placing billions of dollars worth of orders in Chinese deals after years of largely shunning them.
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In the past week in Hong Kong, deep-pocketed firms known as “long-only” investors — such as mutual funds — have bought shares in electric-car giant BYD Co. and bubble-tea maker Mixue Group, as well as Baidu Inc. bonds exchangeable into Trip.com Group Ltd. stock, according to people familiar with the matter.
It’s a significant development because the return of such buy-and-hold investors is seen as crucial to lay the foundations for stable and sustainable gains in Chinese stocks. Long-term investors had stayed away from Chinese stocks over the past few years amid a prolonged market slump.
“Long-only investors have a longer investment horizon and are less likely to sell shares immediately after an IPO,” said Andy Wong, IPO leader at advisory firm SW Hong Kong. “Their participation in the market can provide stability to the company’s stock price in relatively volatile capital markets created by short-term investors.”
For now, those funds appear most visible in the biggest deals. They participated in BYD’s recent $5.6 billion share sale, Hong Kong’s biggest one in nearly four years. Baidu’s $2 billion offering of bonds exchangeable to Trip.com shares matched a record for that type of security by an Asian company.
Long-only investors snapped up at least $1.5 billion of BYD’s shares, while in Baidu’s offering, they ordered enough to cover the entire deal, people familiar with the matter said.
“The scale of the transactions is reminiscent of 2021,” said Phyllis Wang, Goldman Sachs Group Inc.’s head of equity capital markets syndicate for Asia excluding Japan, referring to recent Chinese deals broadly.
The return of long-term investors to these offerings coincides with the rally in Chinese stocks, triggered by DeepSeek’s artificial-intelligence breakthrough, which supercharged investors’ perceptions about Chinese technology companies. The gains added to positive sentiment from Beijing’s economic stimulus measures, which late last year also helped draw global investors back to deals in Hong Kong.
Despite this week’s global selloff, the market watchers continue to be bullish on the outlook for Chinese stocks. Citigroup Inc. just raised its outlook for Chinese stocks to overweight, and the Hang Seng China Enterprises Index is up more than 18% this year.
Goldman Sachs strategists led by Kinger Lau recently noted that global long-only investors have become more engaged in Chinese IPOs and share sales lately, and are increasingly motivated to buy more shares of Chinese companies due to volatility in the US stock market.
Ivy Hu, head of China ECM at UBS Group AG, which helped arrange BYD’s deal, said that offering showed that large investors from the US and Europe have begun returning to Chinese share sales. That’s a contrast to the post-2021 landscape where Asia-based investors were the dominant buyers, she said.
The outlook for Chinese IPOs appears robust, though the pace of deals may pick up after after this month because many companies are in their so-called blackout periods ahead of their earnings releases, Hu said. Bloomberg Intelligence predicts Hong Kong’s IPO market will more than double to $22 billion this year.
Still, the return of global investors appears to be limited to certain Chinese deals. In the broader equities market, mutual funds engaged in active stock picking continued to sell Chinese stocks despite the rally, according to data from Morgan Stanley.
Take Barry Wang, a portfolio manager at Oberweis Asset Management. He said he’s been looking into more deals this year, but they would still need to be priced attractively for him to pick them up.
“Overall sentiment is improving toward China,” Wang said. “But after a strong year-to-date rally, valuation and business fundamentals should be key factors in considering these deals.”
--With assistance from John Cheng.
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