Chinese Smartphone Maker Xiaomi’s Monster IPO Flops on Its First Day of Trading

Xiaomi Corp. fell as much as 6% on its debut, as an escalating trade war and uncertainty about its valuation combined to dampen Hong Kong’s biggest coming-out party in two years.

The eight-year-old Chinese smartphone maker traded as low as HK$ 16.00 compared with its HK$ 17 initial public offering price. That puts the company co-founded by billionaire Lei Jun on pace to become the worst first-day performance for a $ 1 billion-plus Hong Kong IPO since 2011. Xiaomi’s market value is now in the neighborhood of $ 50 billion, becoming the world’s third largest listed maker of mobile devices but a far cry from the $ 100 billion touted last year.

Xiaomi’s high-profile stumble may have a chilling effect on a swathe of Chinese tech corporations keen on raising capital this year to fuel their ambitions, from Meituan Dianping in Hong Kong to Tencent Music in the U.S. It’s a lukewarm showing for an ambitious smartphone label with designs on expanding globally and transforming from a low-margin hardware company into an internet services player in the mold of Apple Inc.

Xiaomi priced its IPO at earnings multiples higher than more established tech giants, including Apple (aapl), Tencent Holdings (tcehy) and Facebook (fb). It then suffered a number of setbacks, from being forced to jettison plans to sell Chinese depositary receipts in Shanghai to pricing its shares at the very bottom of the marketed range. It’s also a disappointment for Hong Kong, which this year revised regulations to allow tech companies with uneven voting structures like Xiaomi to float.

“Tech companies looking to list their shares will need to take a more conservative approach in pricing,” said Anthea Lai, an analyst with Bloomberg Intelligence. That’s “as investors get more cautious about where to put their money given the prevailing trade tensions and several IPO flops recently.”

In the longer term, Xiaomi’s proponents argue that dominance in key markets from India to China and a diversifying Internet of Things business will help it grow into its valuation. As Lei Jun struck the opening gong Monday, he continued his pitch of Xiaomi as an “internet company.” The IPO was designed to fuel its overseas expansion while also allowing earlier investors to cash in their stakes.

Xiaomi’s IPO was hailed as the biggest and most important Chinese technology debut in years. Instead, it began life as a public company on the defensive despite attracting a number of A-list investors to its IPO. George Soros joined fellow billionaires Li Ka-shing, Jack Ma and Pony Ma in endorsing the IPO. Institutional investors including Hillhouse Capital, Qualcomm and China Mobile also chipped in.

On Monday, Lei made it a point to thank his deep-pocketed backers alongside his own employees and the 190 million monthly active users referred to as Mi Fans.

“At this critical moment in Sino-U.S. trade relations, the global capital markets are in constant flux,” Lei told a packed audience at the Hong Kong Stock Exchange. “Although the macro-economic conditions are far from ideal, we believe a great company can still rise to the challenge and distinguish itself.”

Goldman Sachs Group, Morgan Stanley and CLSA are leading Xiaomi’s IPO as joint sponsors.

Xiaomi’s tribulations began almost the moment it embarked on its IPO journey. It’d planned on raising about $ 10 billion and a valuation of as much as $ 100 billion by taking advantage of CDRs: a new instrument Beijing pushed to entice companies to list at home. But that fell apart when it couldn’t adequately address questions posed by regulators, including how a company that gets the vast majority of revenue from phones would pitch itself as an internet company.

When Xiaomi finalized its offer, it did so just as the Hong Kong bourse went into a tailspin. Escalating tensions with the U.S. exacerbated growing concerns about the fallout from a slowing Chinese economy, fueling a climate of uncertainty. Compounding the challenge: traders can short-sell the stock from day one and Xiaomi won’t be considered for inclusion in benchmark MSCI gauges.