Anticipated rate hikes by the U.S. Federal Reserve this year have sent the stocks of Indian and Southeast Asian tech companies lower as investors start to reassess their portfolios.
Investors had been snapping up tech company stocks, betting on future growth. But with bonds offering better returns now, they have become less receptive to the huge losses those companies have been racking up. The pressure on tech stock prices could also cast a pall over upcoming blockbuster initial public offerings this year.
Singaporean gaming company Sea’s shares were down 10.3% through Wednesday from the start of 2022 on the New York Stock Exchange, a steeper drop than the 2.9% decline for the tech-heavy Nasdaq composite index. The stock has seen its market capitalization cut in half to about $111 billion from an October peak.
Sea’s shares had enjoyed a dramatic surge during the pandemic as the company benefited from demand from people cooped up at home. But investor support began to fizzle in mid-November after the company reported stagnant growth in players for its core game business — which had driven its earnings — for the July-September quarter. It is also not clear when the e-commerce business, the other mainstay operation, will start to make money.
Sea shares further slid in December, as investors were spooked by the approaching end of the U.S. Federal Reserve’s easing policy.
The “reality” of the Fed normalizing monetary policy and raising interest rates “leaves highly valued technology stocks vulnerable as the cost of capital increases from zero percent,” said Jeffrey Halley, senior market analyst at foreign exchange company Oanda.
Shares of Grab, a super app operator also based in Singapore, have been slipping after they plunged 21% in their Dec. 2 debut on the Nasdaq through a merger with a special purpose acquisition company. The company’s mainstay ride-hailing service has been hit by pandemic restrictions, and its July-September net loss widened to $988 million. The prominent startup was valued at roughly $40 billion when the IPO plan was unveiled in April. Now its market cap stands at no more than $23 billion.
Stock market listing has also been a bumpy ride for Indonesian e-commerce leader Bukalapak, which went public in August, and Indian digital payment company Paytm, formally known as One97 Communications, debuted in November. As promising startups, both drew attention at the time of their IPOs on their respective local bourses, but concerns about intensifying competition and the sustainability of their business models crushed such fervor.
For tech companies, a slumping stock performance hurts the ability to raise capital. Sea, for instance, raised about $7 billion mainly through a capital increase in September, backed by the strong share price at the time. Such a fundraising bonanza looks unlikely now that shares are tumbling.
Indian companies raised a record $17.1 billion through IPOs in 2021, while peers in the Association of Southeast Asian Nations region procured $15.4 billion, more than twice as much as they did in 2020, according to research company Dealogic. The region is expected to see some big IPOs this year, including India’s SoftBank-backed Snapdeal and Indonesia’s GoTo Group, a creation from the merger of ride-hailing-to-payments company Gojek and e-commerce leader Tokopedia. But uncertainty is growing.
Investors remain optimistic about the medium- to long-term growth potential of the region’s e-commerce and financial service markets, but they will be taking a closer look at the earnings and market control capabilities of individual companies.
One of the main issues for Sea, as it expands operations beyond Asia, will be on leadership and organization, such as how the group manages “itself effectively as a multi-continent, multi-sector operation,” said Jianggan Li, CEO of Momentum Works, a market analytics company in Singapore.
For Grab, investor focus will be on its “next few quarterly reports” to see if it can turn around from the deep losses, he said.
This article was first published in Nikkei Asia.