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Analysis: Nasdaq numptiness

By Paul Mackintosh   
October 9, 2019

There was a time when Nasdaq representatives seemed to pop up at almost every venture capital or private equity event in Greater China, looking for new potential listing candidates and their sponsors. No longer, it seems. According to a Reuters report which cites investment banking and corporate sources, Nasdaq is planning to restrict the listings of small Chinese companies on its board. The ostensible reason is that many such listings end up narrowly held by small groups of mainly Chinese investors, rather than attracting American institutional money.

The result is a change to Nasdaq’s listing rules, effective since August, that sets higher average trading volume requirements and higher minimum commitments per investor in an initial public offering. There may also be delays for companies that don’t demonstrate sufficient ties to US capital markets.

Let’s leave aside the fact that there may be perfectly legitimate reasons for the shareholding patterns of those Chinese companies. These could include home-ground familiarity with the enterprise, a plethora of Chinese high-net-worth individuals with limited investment opportunities back home, as well as US institutional reluctance to dip into that end of the listed market.

You’d wonder why any Chinese company would want to stay listed on Nasdaq in any case, if it’s likely to be vulnerable to the kind of stock plunge that took place on September 27, when even giants like Alibaba were brought low by a Bloomberg report that President Donald Trump’s cabinet was considering various measures to limit investment in Chinese assets, including restricting US pension fund investments into Chinese companies, or compelling Chinese enterprises to delist from US bourses. Alibaba’s American depository receipts lost more than 5% on the news.

While President Trump may be prepared to play with pensioners’ access to high-returning assets essential for their retirement income in order to win a chicken game that can only have losers on both sides, Nasdaq is guilty, at the very least, of some crass carelessness.

No matter what the genuine concerns behind its statements, timing matters a lot. So does perception. If Nasdaq still takes its eastwards outreach efforts seriously, it’s going to have to mount a concerted charm offensive to convince China, from the government down to individual entrepreneurs, that it’s still a friendly – and independent – force.