Xunlei, Muddy Waters Sound Upbeat Notes 迅雷和Muddy Waters保持谨慎乐观

By newsdoug on January 13, 2012

Sentiment rising for US-listed China stocks It’s the new year, and that means a time for new beginnings — or at least that’s what video sharing site Xunlei and infamous short-seller Muddy Waters are saying, as both sound notes of cautious optimism that the worst of the confidence crisis for US-listed Chinese stocks may be past. Let’s start with Xunlei, China’s seventh largest online video site, which is reportedly preparing to relaunch plans for a US initial public offering that it initially aimed to make last year. (English article) Readers will recall that Xunlei had planned to raise up to $200 million when it first announced its IPO plans last July, only to steadily scale back those plans as market sentiment plummeted due to a series of accounting scandals at US-listed Chinese companies. (previous post) It ultimately shelved the IPO, but has now completed preparations to restart the process, a company official said, without being more specific. Meantime, Carson Block, whose Muddy Waters research firm was behind several high-profile short selling attacks that helped to start the confidence crisis, is changing his tone slightly and saying he may actually buy some of the Chinese stocks whose shares took a beating last year. (English article; Chinese article) Block is still being quite cautious, saying only investors with the resources to conduct their own independent research should consider buying Chinese stocks at this point, implying we may still see yet another accounting scandal or 2 emerge before this latest confidence crisis ends, which I expect will be around the middle of this year. But the fact that he would even consider buying some of these companies — many of whose shares fell by half or more last year — indicates he thinks that valuations are probably in a more reasonable range now than they were a year ago. Industry watchers will no doubt be looking closely at Xunlei if it moves ahead with its IPO plan, as investor response could set the tone for the rest of the year, especially if the IPO is even moderately successful. I would expect Xunlei to move forward and take steps to keep expectations relatively low, with the result that it should be able to see modest success with an offering that will probably raise around $100 million in the first quarter.

Bottom line: Recent signals from Muddy Waters and Xunlei indicate the confidence crisis toward US-listed China stocks may be easing, with a sustained recovery likely in the second half of 2012.

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