Rebound Nears For US China Stocks 中概股即将反弹
After a prolonged winter, spring finally appears to be in sight for overseas-listed Chinese companies amid growing investor confidence that accounting issues that have dogged the sector for much of the last 2 years are finally in the past. The latest signs of spring are coming from telecoms software maker AsiaInfo-Linkage (Nasdaq: ASIA), which may be on the cusp of a buy-out at a nice premium; and word that infamous short seller Muddy Waters may finally be ready to cease its relentless attacks on US-listed China companies.
Let’s start with AsiaInfo, one of the oldest US-listed Chinese firms which, like many of its peers, saw its shares lose more than half their value after the confidence crisis began in the spring of 2011. Sensing some good bargains in the market for these older, more reliable companies, a private equity arm of Chinese financial conglomerate CITIC Group made an unsolicited bid for AsiaInfo early this year, prompting the company to invite other bidders in an attempt to get the best price for its shareholders. (previous post)
The company has provided few updates since then, but now Chinese media are reporting that CITIC Capital will buy AsiaInfo in a deal that values the company at about $900 million. (Chinese article) That would represent a nice premium of about 30 percent to AsiaInfo’s value just before word of the CITIC offer first emerged back in January.
The company’s shares rose 6 percent in Wednesday trade in New York, bringing its market value to about $850 million, as it looks like this delayed deal may finally be close to an official announcement. The deal’s closure and the relatively good premium both reflect returning confidence to the market, since CITIC most likely would expect to re-sell AsiaInfo in the next 2-3 years for a nice premium to the price it is now paying.
Meantime, Chinese media are also quoting Muddy Waters founder Carson Block saying he’s lost interest in shorting overseas-listed Chinese stocks, and that the short selling wave that undermined the broader sector has now passed. (Chinese article) Block’s words shouldn’t surprise anyone, since the most recent attacks by Muddy Waters and others like Citron have mostly fizzled without causing major drops in company share prices.
The most recent of those saw Muddy Waters take aim at education services firm New Oriental (NYSE: EDU) back in July, which saw the company’s shares briefly fall but then regain most of their value a short time later. (previous post) Other attacks against Focus Media (Nasdaq: FMCN) and Qihoo 360 (NYSE: QIHU) have also largely failed. Block and other short sellers also engaged in a heated war of words in September with a group of Chinese Internet entrepreneurs, who blamed the short sellers’ pursuit of profits for prolonging a crisis whose major issues had already been resolved. (previous post)
Block’s latest words seem to indicate the short sellers have turned their attention to other targets, finally removing one of the biggest obstacles to a longer-term recovery for offshore-listed Chinese stocks. Look for that recovery to gain momentum after the Chinese New Year in February, with a nice rally possible for these beaten-down shares in the rest of 2013.
Bottom line: A rumored buyout for AsiaInfo and the end to short seller attacks mark the latest signs of a coming spring for offshore-listed China stocks, which could see a nice rally in 2013.
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