They say a butterfly can flap its wings in China and eventually cause a windstorm in the US. In 2007, that windstorm played-out as a surge of stateside interest in American Depository Receipts (ADRs) from China, i.e. Chinese stocks listed on US markets. A company called China Digital TV (CDTV) may have played the role of the butterfly. In October, after two years of dominating its product segment, CDTV listed on the NYSE.¹

In 2007, 38 of the 500 most heavily searched stocks on Financial Search Engines (FSEs), such as CNN Money or Yahoo Finance, were Chinese ADRs. Searcher counts to these 38 stocks grew by an average of 9% each month, while the remaining 462 stocks grew at 1%. From August to September, the number of Chinese ADR searchers grew by 245% and again by 152% in the following month. In October, this volume peaked as each ADR attracted an average of 41,000 searchers.

China’s apparent tech bubble played a significant role in driving this trend. And in 2007, US investors seemed eager to apply the lessons of the US tech bubble in this new context.² Technology sector stocks accounted for over 50% of Chinese ADR searcher counts, while Baidu.com, a Chinese search engine, attracted 96,000 searchers each month. Baidu.com finished 2007 with 60% revenue share in the Chinese Search Engine market—a market poised to grow by 50% in each of the coming years—which made it particularly attractive.³ In Baidu.com’s case, research, particularly on FSEs, translated directly into action on Wall Street. Throughout 2007, the stock’s average trading volume increased by 40 shares with each additional searcher who viewed BIDU on an FSE.

Nevertheless, Baidu.com’s influence on the general interest in Chinese ADRs was second to that of CDTV when it listed on the NYSE. LDK Solar, which listed on the NYSE a few months before CDTV, also bore some influence on the general trend. While the promise of high organic growth gave credence to Chinese ADRs, it was the listing of stocks that inevitably drove the interest of searchers in the US last year.

¹Cheung, Wallace. “The China Digital TV reformer.” CREDIT SUISSE (Hong Kong) Limited. 2007
²Cowan, Lynn. “IPO Focus: Chinese listings in U.S. recall the dot-com days; As share prices soar, some see a bubble; different this time?” Wall Street Journal Asia [Hong Kong] 29 October 2007: 19.
³Kwong, Kar Han and Mark May. “BIDU: Initiating Coverage with a Hold Rating.” An Investment Analysis by Needham & Company, LLC. 2007.

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