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Apple challenger Xiaomi makes lacklustre Hong Kong stock debut

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Xiaomi's Weak Debut Signals Trouble For Upcoming Hong Kong Tech Listings

Chinese tech giant Xiaomi stumbled on its Hong Kong debut on Monday, falling by more than 5% before recovering to close at HK$16.80 (US$2.14).

Lei Jun, founder and CEO of Xiaomi, hits a gong at the listing ceremony of Xiaomi in Hong Kong, south China, July 9, 2018.

Trading opened at 16.60 Hong Kong dollars, below Xiaomi's offering price of 17 Hong Kong dollars. The Chinese smartphone maker opened for a trade down more than 2 percent on Monday.

Chinese markets have had a rough few months, as investors worry about the intensifying trade war with the United States.

The Sino-U.S. trade dispute has roiled financial markets including stocks and currencies, and the global trading of commodities from soybeans to coal over the past several weeks.

Retail investors failed to show much interest in Xiaomi despite the hype, but those who bought into the IPO may be able to flip their shares from Friday.

Xiaomi's shares dipped in early trading, hitting HK$16 in mid-morning trade, down almost 6% from the HK$17 they had been sold at. "Even though Xiaomi remained to be a very good story, I think the market is at a stage where you have to prove yourself first before the market can give you a good valuation", Hao Hong, head of research at BOCOM International, told CNBC.

Xiaomi's founder Lei Jun described his company's business model as a "triathlon model" with three components; third-party hardware sales, smartphone sales, and "internet service" sales which include media and ads.

"We are an internet firm".

The company is the first in Hong Kong to sell shares with a dual-class structure since the city changed its rules to allow founders to keep out-sized voting rights.

Xiaomi enjoyed an understated debut. It'd planned on raising about $10 billion at a valuation of as much as $100 billion by taking advantage of CDRs: an instrument Beijing pushed to entice companies to list at home. It is also the first under the city's new exchange rules permitting dual-class shares, common in the USA tech industry in an attempt to attract tech floats.

"Without the innovation of the Hong Kong capital markets, it would be hard for us to have a chance to list publicly in Hong Kong", Lei said, according to a transcript provided by the company.

Moreover, a tech company has previously never utilized its smartphone and hardware business to pedal its internet business unit, which made investors skeptical.

Chinese e-commerce site Alibaba raised $25bn in NY in 2014.

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