Can the Chinese smartphone giant Xiaomi survive a trade war?

Xiaomi had a bumpy one Market launch in Hong Kong on Monday.

In early trading, the share of the Chinese smartphone maker even fell 5.9% from its stock market price, which was already at the low end of the company's targeted range. But late in the morning they had made up most of their losses.

Xiaomi's IPO brought in $ 4.7 billion, valued at approximately $ 54 billion, far less than the large numbers reported earlier this year.

Its shares fell on Monday, although the broader Hong Kong market gained 1.5%.

Xiaomi's weak debut comes at a time when global markets have been shaken by the escalating trade dispute between the US and China. The dispute has its roots in American concerns over China's tech ambitions and its vast trade surplus with the United States.

xiaomi lei jun hkex
Xiaomi CEO and co-founder Lei Jun gave the supporters and reporters the thumb, but also the unfortunate timing of the IPO.

Shares in Hong Kong and Shanghai fell sharply. By Monday, Hong Kong's reference index had fallen more than 10% since the beginning of June.

Xiaomi CEO and co-founder Lei Jun confirmed the unfortunate timing in the Hong Kong Stock Exchange's comments on Monday morning.

"At this critical moment in Sino-US trade relations, global capital markets are in constant flux," he said.

"Although the macroeconomic conditions are far from ideal, we believe that one big company can rise to this challenge and stand out from others," added Lei.

Relatives: Xiaomi goes to Europe

Analysts say a combination of concerns has weighed on Xiaomi's initial public offering.

"Especially in the tech sector, the policy of the political front between the US and China is in progress." said Jake Saunders, analyst at ABI Research. "The way ZTE has been hit very hard in the United States … that has certainly had an impact," he added.

Chinese smartphone and telecommunications equipment maker ZTE has been in crisis since the US government banned American companies from selling their components. He cited as the reason violations of a previous agreement, which punished the company to circumvent sanctions against Iran and North Korea.

Related: As China's Xiaomi took the Indian smartphone market by storm

Xiaomi has also asked analysts questions about his ability to increase profit margins in the future, as much of his smartphone sales are at the bottom end of the market.

"The market is really worried about how much growth Xiaomi can generate in 2019 and whether the company can deliver what it offers to investors," said Hao Hong, chief strategist of Hong Kong-based broker BOCOM International.

Xiaomi argued that because of Internet services – such as music and video streaming apps – that it offers with its devices, it should receive a higher rating than other hardware manufacturers.

Enthusiasm for Xiaomi may have diminished as investors relax on other major Chinese technology IPOs on the horizon, Hong said.

Tencent (TCEHY) said over the weekend that it plans to list its music streaming business in the United States, and online service platform Meitanan Dianping filed last month to go public in Hong Kong. Didi Chuxing, a company engaged in Ride Hailing technology, and Ant Financial, a digital payments company affiliated with Alibaba, are also reportedly involved in IPOs.

Related: Xiaomi Shrinking IPO shows a tougher climate for China Tech

Founded in 2010, Xiaomi was the fifth largest smartphone company in the world, according to IDC.

Its main business is phones, but it also sells a range of other Internet-connected devices, including scooters and even smart rice cookers. Most sales take place in China, but in other countries it is growing aggressively.

Xiaomi overtook Samsung to become the number one smartphone retailer in India earlier this year. The company is also making a splash in Europe, where it has become the fourth largest smartphone seller in the market after less than two years. Latin America is also on the horizon.

– Pia Deshpande contributed to this report.

CNNMoney (Hong Kong) First published July 8, 2018: 9:28 am ET



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