A poor track record dogs US plays on the ASX
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When it comes to buying shares in US entities which list on the ASX, investors could be forgiven if they keep their hands firmly in their pockets.
Accessing the US market can be tricky for local investors, which is why many opt for exchange traded funds (ETFs) or listed investment companies focused on international equities.
An ETF is a ‘basket’ of securities, like stocks, which often track indexes or a range of industry sectors; like large cap mining companies, for example.
There are entire market sectors — from cloud-based software companies through to specialist semiconductor companies — that are difficult to access from Australia yet offer promising rewards.
And local investor appetite for risky investments means there has been a steady flow of US companies coming to the ASX to raise funds they wouldn’t be able to in their home market.
Investors could be forgiven for thinking that putting money into locally listed US entities means they’re getting in on the ground floor of what could be the next big thing; but experience suggests otherwise.
Take Revasum (ASX:RVS), which designs and makes specialised semiconductor equipment.
It went public on the ASX less than a year ago raising $30 million, valuing the company at $150 million at its IPO price of $2.
Its shares have fallen around 30 per cent over the past few days alone to around 90c, following a surprise cut to revenue forecasts on delays in equipment sales.
A few months before Revasum hit the local boards, Pivotal Systems (ASX:PVS) raised about $50 million, issuing shares at $1.86, which valued the company at around $200 million.
It also produces equipment for the semiconductor industry. Its original US venture capital backers are still large holders.
Despite what it has termed ‘’difficult trading conditions” it has so far met prospectus forecasts. Even so, investors are on the backfoot, and its shares are changing hands at $1.40, badly lagging the gains by the broader market over the past 18 months.
Investors will be hoping it doesn’t follow in the footsteps of an earlier listing by US company Planar Semiconductor, which suspended its shares from trading on the ASX in around 2003, and was delisted a few years later before disappearing, leaving local investors out of pocket.
They have joined the likes of Reva, which makes a bio-absorbable ‘stent’ for preventing arteries from blocking. Reva originally raised $80 million from local investors.
But a warning about the use of metallic stents has sent demand into freefall, with shares in the company now delisted from trading on the ASX, with little optimism over its prospects.
Reva was quickly followed by another US company, GI Dynamics (ASX:GID) which raised $85 million.
GI claims that it’s ‘endobarrier’, which blocks food from being absorbed in the upper intestine, reduces obesity and type 2 diabetes.
The only problem is that there were cases of infection when its ‘sleeves’ were fitted, which prevented it from winning government approvals for the launch of its product, forcing it to raise more cash and undertake further testing, with the shares plunging from over $1 to trading now for just 3-4c.
These two companies came to the ASX in the wake of the GFC, at a time when US markets were effectively closed to speculative raisings by biotech hopefuls.
Then there’s AirXpanders which came Down Under in 2015, raising $36 million. It lasted barely three years before disappearing earlier this year without trace.
Visioneering Technologies (ASX:VTI) was next.
Two years ago, it raised over $30 million, issuing shares at 42c each, which valued the company at more than $80 million.
Eighteen months later it came back for more, raising around $9 million at 18c, which it followed up in mid-2019, raising another $11 million at 4.5c. Local investment company Thorney came onto its register for the first time, giving the company some validation amongst other investors.
Since then, the shares have rallied a touch to trade at around 7c. But, like many other US-based stocks, investors in its earlier rounds of fundraising are still deeply out of pocket.