Last week, some entities chose to "be first" and this may have turned into a fire sale where institutional shareholders simply have given up on China ADRs as an asset class.
At a time when Chinese EV stocks are experiencing panic sell-offs in both the US and Hong Kong, we need a smarter mind to help explain what's really going on, and Deutsche Bank analyst Edison Yu's team is one of them.
These big declines represent delisting fear and aggressive selling by prominent large holders, and a near-term technical trough could occur in the coming weeks, but multiples will remain paralyzed compared to their US peers for some time, the team said in a research note sent to investors on Monday.
Shares of leading Chinese EV makers NIO (NYSE: NIO, HKG: 9866), XPeng Motors (NYSE: XPEV, HKG: 9868) and Li Auto (NASDAQ: LI, HKG: 2015) continued to plunge heading into this week.
NIO fell 14.14 percent in Hong Kong and 12.26 percent in the US on Monday. XPeng fell 22.2 percent in Hong Kong and 13.79 percent in the US. Li Auto fell 19.6 percent in Hong Kong and 20.61 percent in the US.
In the note sent to investors before the US stock market opened Monday, Yu's team said the sharp declines of these companies in Hong Kong reminded them about a classic scene in Margin Call, where Jeremy Irons expresses the following: "there are 3 ways to make a living: be first, be smarter, or cheat."
Last week, some entities chose to "be first" and this may have turned into a fire sale where institutional shareholders simply have given up on China ADRs as an asset class, the team said.
In addition, recent reports of Russia asking China for military assistance and the strict Covid lockdown in Shenzhen have also exacerbated already poor investor sentiment, according to the team.
So, what might happen next, Yu's team concluded:
The obvious next question is where is the bottom; these are real companies that continue to grow and disrupt the auto industry.
We think a near-term technical trough could occur in the coming weeks but expect multiples to remain paralyzed for awhile compared to US counterparts.