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Chinese tech IPO has a big first day

BusinessE-Commerce IndustryConsumer Goods IndustriesFinancing and Stock OfferingsInitial Public OfferingsAlibaba GroupRenren
Shares of the Chinese online retailer JD.com rose solidly in the company's first day of trading
Investors hope JD.com will thrive as the Chinese middle class develops in coming years

A single encouraging IPO can't cure all that's gone awry lately for Chinese stocks, the technology sector or the market for initial public offerings.

But the closely watched debut of Chinese e-commerce company JD.com Inc. did more than its part Thursday.

Shares of the Chinese online retailer rose solidly in the company's first day of trading, stirring hope that tech stocks — and, in particular, recently bloodied Chinese tech stocks — are on the mend.

JD.com set Wall Street abuzz late Wednesday when the company priced its IPO at $19 a share, topping the expected range of $16 to $18. The company raised nearly $1.8 billion.

The stock rose as much as 20% above its offer price Thursday morning before ending the day up 10% at $20.90 on Nasdaq.

The JD.com deal came at an advantageous time for its Internet rival, Alibaba Group Holding Ltd., a Chinese Internet colossus that is expected to have the world's largest-ever IPO this summer.

Investors hope JD.com, with a business model comparable to Amazon.com Inc.'s, will thrive as the Chinese middle class develops in coming years.

They're also betting that surging Internet usage in China — about half the population of 1.4 billion still lacks Internet access — will turn millions of people into online shoppers.

JD.com is not profitable but its sales are soaring, a tantalizing prospect for analysts who expect it to have significant reach in coming years.

"What's exciting about Chinese tech stocks is [that] it's a huge market in terms of people and it's an under-penetrated market," said Tim Hanson, senior analyst at Motley Fool Asset Management.

However, it's unclear whether the reception for JD.com offers more than a temporary reprieve for tech stocks or Chinese-based companies that have been beaten up lately.

Along with the rest of the tech sector, Chinese tech stocks surged last year amid enthusiasm about the global economy.

But shares of riskier companies, including technology and small stocks, were pummeled in March and April as investors worried that the prior rally had gone too far.

The Guggenheim China Technology exchange-traded fund, an index of Chinese tech stocks, skidded 22% from early March through early May. It has rebounded 9% since then.

The malaise in tech and other risky stocks put a crimp in the IPO market, which was having its best performance in years. The shakeout also underscores the risks of Chinese tech stocks, analysts said.

Though economic expansion in China remains the envy of the developing world, the growth rate is slowing. And many analysts worry that the Chinese banking system and real estate market are dangerously overinflated.

Even as the U.S. stock market has risen strongly in the last few years, the Chinese equity market has stagnated. The market is down roughly two-thirds from its late 2007 peak and has generally moved sideways for most of the past two years.

There are many solid Chinese companies, including Alibaba, Baidu Inc. and Tencent Holdings Ltd., analysts said.

But several Chinese stocks have cratered.

E-Commerce China Dangdang Inc., an Internet retailer, surged 87% in two weeks in February and March before giving back all the gains since then. Youku Tudou, a Chinese Internet TV company, has slumped 45% since early March. Social networking firm Renren Inc. has lost 85% of its value since going public three years ago.

"There's an enormous bifurcation in the quality of the companies," Hanson said. "You've got really well-run innovative companies like Baidu and Tencent and Alibaba.

"And then on other side you have companies like Dangdang and Renren, a host of others, that are smaller and not very well run, but they were able to capitalize on the hype," he said.

Analysts think the worst is over for the Chinese Internet sector but doubt that every stock will recover.

"You're going to see the best names, not come all the way back but come much of the way back," said Max Wolff, chief economist at Citizen.VC, a research and investment firm. "You'll see the names that passively rode the [wave] stay under pressure."

walter.hamilton@latimes.com

Copyright © 2014, Los Angeles Times
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