Everbright Capital CEO Wang Ran (left), Legend Investment Managing Director Liu Erhai (right) visit Sina.com
Sina Technology News, the morning of July 1st: In the past few months, financial fraud and contractual joint ventures have cast a shadow over Chinese concept stocks. Is it because China's internet industry is too restless or is it because Wall Street is too greedy? Everbright Capital CEO Wang Ran and Legend Investment Managing Director Liu Erhai, while visiting Sina.com's interview room, pointed out that financial fraud is only an individual phenomenon, but Chinese concept stocks are indeed overvalued. Under uncertain conditions which remain unclear, the window for going public in the U.S. has been closed by half.
Valuation Inflation Leads to Overall Decline
Wang Ran pointed out that this time around, there was a collective decline in Chinese concept stocks. The basic reason is that during the previous period on the stock market, some Chinese concept stocks were indeed overvalued. Therefore, the market will seize the opportunity to adjust, and the emergence of integrity issues and contractual joint ventures just happened to become the opportunity for adjustment.
However, are the integrity issues of Chinese enterprises serious enough to be "collectively sealed off"? Wang Ran believes this is only a panic sentiment. Because so far, the financially fraudulent companies disclosed by the media are not usually well-known companies at the forefront.
"China has already seen at least hundreds of enterprises listed on the London Stock Exchange, NASDAQ, etc., up to now. Under such a large base, the appearance of individual financial problems, though we do not wish to see them, can also be explained from a probability perspective." Wang Ran said, "This is also the reason why the current stock market still has some support."
Liu Erhai attributed the slump in concept stocks to unresolved uncertainty factors. "Integrity issues, contractual joint ventures and other events currently do not have particularly clear answers. When will they come out of the doldrums depends on when these factors become certain things."
However, recently, Chinese concept stocks have experienced a rebound. Wang Ran tends to think that it cannot be ruled out that some stocks with support, including Sina, will grow and rebound first, but overall, Chinese concept stocks are still in a depressed state in the market and will continue for some time.
"As for whether it will last six months, nine months, or one year? Everyone has different outcomes. If I must give an answer, I tend to believe it won't be too long." Wang Ran said.
The Window for Going Public in the U.S. Closes by Half
Under the dramatic fluctuations in the capital market, the intensive actions of Chinese Internet companies going public in the U.S. in the first half of the year seem to have slowed down. Tudou.com's repeatedly delayed IPO plan and Xunlei's outright postponement of its IPO make the topic of going public in the U.S. suddenly subtle: Has the depression of concept stocks caused the IPO window to close?
In Wang Ran's view, it cannot be said that the IPO window has completely closed, but at least it has closed by half. And in the entire capital market where confidence in Chinese concept stocks is unstable, going public will not get a good valuation.
For those companies hoping to go public before the window closes, Wang Ran's suggestion is to look long-term and seriously consider: if you work very hard, spend a lot of effort, and even commit fraud to go public, and finally barely achieve it, it may still be worse than death because the stock has no P/E ratio, no one pays attention, and lawyers and specialized fake account-revealing companies will be watching every day. It is actually a very arduous task.
Liu Erhai then pointed out that under this situation, companies can choose to continue financing from the private equity market or seek some merger and acquisition opportunities, still realizing the value of the enterprise. Since there are now many clever structural ways for mergers and acquisitions, allowing entrepreneurs to start businesses on a larger platform, compared to IPOs during market turbulence, it is indeed a more relaxed path.
However, this overall slump of Chinese concept stocks is not necessarily a bad thing for Chinese enterprises. Wang Ran believes that this fluctuation will highlight some issues and provide entrepreneurs with enlightenment: the company's full attention should still focus on how to broaden its business and grow bigger and stronger.
"Currently, the total market value of generally fraudulent companies is only tens of millions of dollars. When a company reaches a certain size, say listing with $1 billion, I believe the chances of most companies committing fraud will naturally decrease." Wang Ran said.
(Reported by Cui Xi)
Below is the transcript of the interview:
Chinese Concept Stocks' Slump Will Continue
Host Cui Xi: Good afternoon, netizens of Sina! Welcome to Sina Technology's interview room! Today, we are very happy to have two guests to discuss the controversies surrounding concept stocks. Sitting to my right is Everbright Capital CEO Mr. Wang Ran, and the other is Legend Investment Managing Director Mr. Liu Erhai. Please welcome both of them to greet our online friends.
Wang Ran: Good afternoon, everyone!
Liu Erhai: Good afternoon, everyone!
Host: Both of you are old friends of Sina Technology. You've often discussed topics related to capital before. Chinese concept stocks reached a new high in April this year, but after May, they suddenly plummeted sharply. This form is a bit like a roller coaster. What do both of you think about the situation of Chinese concept stocks?
Wang Ran: In the past few days, we have seen a rebound. This time, the overall decline in Chinese concept stocks is not due to individual stocks, but rather an overall decline. The most basic reason is that during the previous period on the stock market, some Chinese concept stocks indeed had inflated valuations. This is the basic logic of business. When there is definitely an inflated component here, the market will certainly find an opportunity to adjust, and this opportunity requires the combined effect of external forces. In the previous period, so-called external forces appeared exactly, such as issues regarding integrity and VIE issues, etc. These factors converged together, providing a very good opportunity and background for the overall market adjustment. The short-selling institutions in the market also found good support, causing a significant downward adjustment in overall Chinese concept stocks.
Now, the question everyone asks the most is, how long will this adjustment last and what will be the trend in the second half of the year? I often joke that if you ask all investors in the U.S. now about Chinese concept stocks, their answers might all be quite irresponsible, i.e., it could be a long time, or it could be short, indicating that everyone does not have a definite expectation.
But I think since the fundamental factors leading to this adjustment have not fundamentally changed, such as the integrity issue has not been completely eliminated. Until now, questions related to integrity, false financial reporting, and VIE issues have not been thoroughly resolved. In this situation, I personally tend to believe that although it is possible that individual stocks, including Sina, have significantly rebounded in recent days, stocks with support will rebound first, but overall, Chinese concept stocks will remain relatively sluggish in the market for some time. As for whether it will be six months, nine months, or one year, each person has their own interpretation. If I must say, I tend to believe it probably won't be too long.
Liu Erhai: Some people have done research before, asking whether Chinese concept stocks listed in the U.S. are more affected by the U.S. stock market or the economic situation in China. I remember that study seemed to conclude that they are more influenced by the overall U.S. stock market. However, today's situation is not like that, because the overall U.S. stock market has not experienced significant fluctuations, but Chinese stocks have experienced significant fluctuations. This phenomenon has changed for several very important reasons.
Firstly, information transmission is very difficult, especially in countries like China, whose ideology is different from that of the U.S., and whose currency is also not the same and not freely convertible. Some information transmitted there is either exaggerated or drastically reduced. Exaggeration means this matter is extraordinarily good, or this matter is extremely bad and terrible, easily leading to extremes. This can explain the current situation, transitioning from being very lively to less lively, slightly depressed. As Mr. Wang mentioned earlier, when will this matter recover or adjust? It may still require market factors to be released first, meaning the uncertainties that people perceive need to become certain. In the past, when performing crosstalk, people often say throwing a pair of shoes and waiting for the sound of the other shoe landing, which represents this uncertainty. Recently, many events have occurred, including VIE and other matters related to other enterprises, but these matters do not yet have particularly clear final answers. It may be like an earthquake; after an earthquake, people become panicked, adapt to it for a period without another earthquake, and then adapt again.
Wang Ran: Even a slight aftershock would suffice.
Liu Erhai: Another point is restoring confidence through positive factors, such as corporate earnings announcements. Everyone says Chinese companies have various problems, and indeed, many enterprises have problems, but the internet companies that went public this time should be quite good overall, with performance. Companies with absolutely no profit or very little profit are relatively fewer. Therefore, confidence needs to be restored through positive factors, quarter by quarter, releasing results, doing well, releasing results, doing well... relying on these positive factors to change.
Financial Fraud is Only an Individual Enterprise Phenomenon
Host: The first factor mentioned earlier is the problem of financial fraud. The feedback from the U.S. indicates that the issue of Chinese enterprises committing fraud is severe. Are Chinese enterprises really committing such serious fraud?
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