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China halts Ant Group’s $34B IPO

Kevin Carter EMQQ Founder joined Yahoo Finance to discuss China halting Ant Group’s $34B IPO.

Video Transcript

ADAM SHAPIRO: Welcome back to Yahoo Finance Live. It was supposed to be a record IPO, bigger than Saudi Aramco-- that would be Ant Group-- when it would start trading not only on the Hong Kong exchange, but Shanghai exchange-- raised about $34 billion. But then we found out, not so fast, Chinese regulators clamping down on that. So it begs the question, how will this affect future listings?

And something else, a lot of us might have been caught by surprise, but not our next guest. Kevin Carter, the founder of EMQQ, had reservations about all of this going into what was going to be the-- what-- the pricing on Thursday and the trading on Friday. So welcome to the program, Kevin. And I'm curious, you said you were a little bit concerned about this. As it played out, what you were concerned about, are we learning that those were founded fears?

KEVIN CARTER: Well, I don't know that it's playing out the way I thought it might because I didn't really know how it would play out. What I was concerned about was really a combination of four factors. The first was the already somewhat frothy Shanghai market, which is dominated by retail investors. You know, here in the US, we see stories about how the Robinhood effect has increased our retail participation from 10% to 15% of volume. Well, in mainland China, it's 80% of the volume.

So it's already got that going on. You had an incredible amount of leverage offered-- 20-to-1 leverage offered for people to buy the IPO. You had an incredible amount of demand-- over demand for the IPO. You had $3 trillion of demand, which is enough to buy Apple and Google.

And finally and importantly, you have this AH share premium, where the stocks that trade both in Hong Kong and in Shanghai have not traded at the same prices. And so it was those combinations-- the combination of those factors that had me concerned, but I didn't really know how would play out, other than to say it might break the Chinese stock market. And based on the Hong Kong Monetary Authority's need to intervene for the currency as a real-- as a result of the strong demand, I'm not surprised. I'm not sure that that's 100% of the reason why they've at least temporarily scrapped the IPO. But I think it was probably a factor.

SEANA SMITH: Kevin, one thing that you just said that juped out to me was that if this had the potential to break the Chinese market, the Chinese stock market. What exactly do you mean by that? I mean, unpack what exactly that means for the viewers.

KEVIN CARTER: Well, again, I didn't know what it meant. I just thought there was-- I thought it was sort of too hot to handle. You had literally, you know, hundreds of millions of Chinese investors clamoring to get a stake in it. And again, because you can't arbitrage between Hong Kong and Shanghai, I thought there might be some-- I thought something happened, but I didn't know what, to be honest.

ADAM SHAPIRO: So how do--

KEVIN CARTER: And I'm not sure-- this is certainly not what I-- one thing I was thinking about, and it may or may not be related.

ADAM SHAPIRO: What should we-- you know, in the United States-- because there's been this discussion before today's action that-- are we losing our ability to lure companies to list here? What are the ramifications of this?

KEVIN CARTER: Well, you know, we've obviously rattled the saber with Chinese listings. And so a lot of the Chinese internet companies, which have historically traded here, on our exchanges, have sought to also list in Hong Kong. And I think that will continue.

The Ant Group IPO, however, I don't think was ever planned to have a New York listing. Even when they did their last capital raise a couple of years ago, they had laid out that, in fact, they intended on listing in Shanghai and in Hong Kong. And I think it's largely because of the regulated nature of their business, which is banking.

SEANA SMITH: And Kevin, just going off of that and drilling down just a little bit more, do you think that this delay is going to complicate China, specifically, getting these types of feature, big listings?

KEVIN CARTER: No, I don't think it will, and I don't-- and again, for the regulated financial services firms, I don't think they're-- they have a choice other than to list in Shanghai to appease the party. I don't think-- I think this is a delay, and I don't think it signals anything particularly negative.