dropped the valuation target for its June 30 initial public offering from $100 billion to the mid-$60s. That seems to have been enough, as the Chinese ride-hailing champion’s shares climbed 18% in their first two sessions. That success could usher in a next wave of tech IPOs from emerging markets. But the best ones may be outside China.
“There’s a lot of activity in our space all over the world,” says Kevin Carter, chief investment officer at the
EMQQ Emerging Markets Internet & E-Commerce
exchange-traded fund (ticker: EMQQ). The pending IPOs he is most excited about are all ex-China: GoTo, the Indonesian unicorn formed when ride-hailer Gojek merged with e-commerce player Tokopedia; Indian digital payments leader Paytm; and Nu Pagamentos, whose Brazil-based Nubank has quietly become the world’s largest digital bank.
Didi (the name is the Chinese equivalent of “beep-beep”) embodies both the possibilities and pitfalls of China tech. A population of 1.4 billion, two-thirds of whom still don’t have their own cars, provides a growth runway.
“They could grind their way to profitability with another one-third increase in revenue,” says Jeffrey Towson, head of research at Asia Tech Strategy.
On the pitfalls side, Didi (DIDI) is vulnerable to the campaign of regulatory scrutiny that has depressed share prices for China tech peers like
Alibaba Group Holding
Official news agency Xinhua recently hinted that Didi should pay drivers better, explaining that many feel “trapped in the system.”
A less noted threat is increasingly Darwinian competition in China’s online sector as markets mature and platforms encroach on each other’s territory. Didi is a quasi-monopolist in taxis for now, Towson says. But Alibaba, with its vast e-commerce customer base, or
(3690.Hong Kong), the market leader in food delivery, could “jump into its business any day.”
Chinese issuers have been trying their luck this spring with a few different stories for the market: upstarts like
(DDL), which are challenging Meituan in food delivery, or subsidiaries like
(2618.Hong Kong) and
JD Health International
(6618.Hong Kong), spun out of Alibaba’s e-commerce challenger
None have exactly wowed investors. “There’s quantity but not much quality coming out of China,” says Richard Cheng, head of China equity sales at Auerbach Grayson. “The market is oversaturated at the moment.”
Ex-China markets present challenges of their own. Indonesian consumers are spread across 17,000 islands (five major ones). Fragmented and bureaucratized India has been called “the land of infinite impossibilities,” Carter quips.
But the commanding heights of the e-economy are still up for grabs in these places—especially payments and finance, which is emerging as the richest digital real estate. “The fintech substory is the biggest and most powerful,” Carter says.
One market that combines great infrastructure, wealthy consumers, and a relatively open competitive landscape is South Korea, says Jinjoo Hong, Cheng’s colleague at Auerbach Grayson.
She’s keen on
(035720.Korea), a chat app turned superapp whose flagship stock has tripled over the past year. Now it’s getting ready to list Kakao Bank and Kakao Pay. Each should fetch valuations in the $15 billion range.
What’s certain is that the digital transformation story is moving beyond China. Investors may kick themselves for ignoring the new companies on offer.