China GPs not worried by public markets volatility - AVCJ Forum

The Shanghai Composite Index gained 5.76% on July 9 to close at 3,709 points, but since the middle of June the index has fallen approximately 25%. The Shenzhen Composite Index has posted a one-month loss of 34.71%, while the city's SME and Chinext boards have seen similar levels of price erosion. Despite the sell-off, each index is still up substantially on a one-year basis.

"I would encourage people not to look or read too much into what is happening in the public markets. This has happened in almost most the same manner three times for certain and probably four times," Derek Sulger, managing partner at Lunar Capital, told the AVCJ USA Forum in New York. "There is a massive run up to double or triple the previous level and then it goes back to where it started."

The phenomenon is very much driven by retail investors and shifts in the large pool of domestic savings in and out of the stock market.

"The distortion is driven by retail players," said John Lin, managing director of NDE Capital. "China does not have enough institutional flow to support stable valuations, although more institutions are being allowed to come in. We have some insurance-related LPs and sovereign funds are also coming in."

He added that the valuations on term sheets have gone from "ridiculous" over the last 7-8 months to entrepreneurs now being willing to compromise. At the same time, the onus is on China's regulators not to allow the recent volatility to hold back planned reforms, such as a disclosure-based IPO approvals system and allowing leading internet companies to list domestically.

"People have to remember not to be quick to discount common sense when analyzing investments in China," Sulger said. "Chinese policy makers are not trying to do anything that is terribly radical: helping private enterprises and slow down state-owned enterprises; and helping companies become better governed and have better access to capital markets and credit markets."

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• Topics
• Greater China
• GPs
• China
• Lunar Capital Management
• GPs