(Yicai Global) July 16 -- Traders expect Xiaomi's share price to keep on zigzagging after two Chinese bourses blocked mainland investors from buying into the smartphone maker through their stock connect programs. In Hong Kong, Xiaomi's shares fell almost as much as 10 percent, the daily limit.
In an unexpected move, the Shanghai and Shenzhen stock exchanges said on Saturday that they will not expand their stock connect schemes with Hong Kong to include companies with weighted voting rights because mainland investors have not fully grasped how these companies work. Xiaomi, which went public on July 9, has such a dual-class share structure loads voting rights in favor of founding shareholders.
Shares [HK:1810] of the Beijing-based company closed 1.6 percent lower today at HKD21.10 (USD2.69), snapping four straight trading days of gains. The stock had climbed more than 17 percent since Xiaomi's initial public offering, when it briefly dropped below the offer price. Investors had anticipated mainland capital inflows would help to prop up the share price.
Xiaomi faces pressure to shift from the previous huge gains amid a lack of support from mainland capital following the weekend's unexpected news, Ronald Wan, chief executive officer at Partners Capital International, told Yicai Global.
In the six months following its listing, the company already faced pressure from early-stage venture capitalists and private equity funds that could pare their stakes, said Sinolink Securities analyst Tang Chuan.
The Hong Kong bourse has rolled out derivative tools such as options, futures and warrants for Xiaomi's individual shares, a securities trader in Hong Kong told Yicai Global, adding that the firm's early investors may use these, as well as short-selling, to hedge against the risk of a price drop after the six-month lock-up period ends in January.
Founded in April 2010, Xiaomi has grown into one of the world's biggest makers of smartphones under Lei, who is also chief executive, and has expanded into gadgets and internet-connected home appliances such as televisions.
Though Xiaomi has been incorporated into the constituent stocks of various indexes, with passive buying from index funds continuing today, it remains to be seen whether it can be included in Hang Seng Index given that it is now only a part of the Hang Seng Composite Index and partial sector indexes.
Editor: Emmi Laine