Shein’s $1.7B IPO was heavily subscribed, so why did the stock crash 10%?

Shein’s Hong Kong debut turned sour on Tuesday, with the fast-fashion group’s shares falling as much as 10% despite an initial public offering that attracted more orders than shares available.

The stock opened at its HK$48.56 offer price before sliding to about HK$43.80. Shein raised $1.7 billion in the listing, valuing it at about $26.5 billion.

The development marks a dramatic reset from the nearly $100 billion valuation it achieved in 2022.

Oversubscribed did not mean Shein looked cheap

Oversubscription simply meant investors wanted more shares at the IPO price, but did not mean they would pay more once trading began.

Shein’s retail offering was subscribed 5.63 times, while its international tranche was covered 2.59 times.

Analysts noted that demand was modest by Hong Kong standards, where recent deals have been oversubscribed hundreds of times.

Valuation remained a sticking point. Shein listed at more than 15 times forward earnings, based on Bloomberg Intelligence estimates. That was roughly double PDD’s multiple and above the Hang Seng Index.

Saxo chief investment strategist Charu Chanana told Reuters that the weak debut showed investors still did not see Shein as “obviously cheap” even after its enormous valuation reset.

She said the market was increasingly treating the company as a retailer facing margin and execution pressure rather than a disruptive high-growth platform.

Gary Tan, portfolio manager at Allspring Global Investments, made a similar point in comments reported by Bloomberg. He said the stock was already pricing in “part of a growth comeback” before Shein had delivered one.

Tariffs have changed Shein’s growth economics

Investors are also reassessing the business model that powered Shein’s international expansion.

The company benefited for years from shipping low-value packages directly to US consumers under the de minimis duty exemption. The US ended that exemption last year, while the European Union has also imposed charges on low-value parcels.

Those changes have increased costs. Shein’s net income fell 39% last year, and the company swung to a first-quarter loss. The company posted a $99 million quarterly loss in July.

Competition has intensified, particularly from Temu and AliExpress, while Shein continues to face regulatory scrutiny in major Western markets.

Kenny Ng, strategist at China Everbright Securities International, said that weaker financial performance, shifting trade policies and geopolitical tensions were making investors more cautious about Shein’s valuation.

Momentum Works CEO Jianggan Li said the reset reflected more than slower growth, with investors now factoring in tariffs, regulatory risks and competition.

Shein is competing with a hotter IPO trade

The market backdrop has made that valuation challenge harder.

Investor enthusiasm in China and Hong Kong has increasingly concentrated around AI, robotics and memory-chip listings.

Pepperstone head of research Chris Weston told Reuters that the contrast with recent technology offerings showed where investors currently want exposure.

That leaves Shein competing for capital against businesses promising faster structural growth and direct links to China’s technology investment cycle.

uSMART Securities research executive director Dickie Wong had warned before the debut that he had “never been bullish on this IPO,” pointing to weak revenue growth and benefits flowing to earlier investors.

Shein’s IPO succeeded at one important task: attracting enough demand to complete a $1.7 billion listing after failed attempts in New York and London.

But its first trading day exposed the difference between securing an IPO allocation and convincing investors to pay more in the open market.

Until Shein proves that growth and profits can accelerate again, investors appear unwilling to pay today for a comeback that remains prospective.