Shares of Shein Global Holdings dropped sharply to their lowest level since the company’s initial public offering two weeks ago, closing down 9 percent at HK$36.40 in Hong Kong trading. This decline followed a downgrade by Jefferies to an “underperform” rating and was compounded by product safety recalls in Australia and New Zealand.

Shein’s stock debuted on the Hong Kong exchange on September 1 at HK$48.56 and has since fallen roughly 25 percent. The company's market capitalization stood at HK$155 billion on the most recent trading day, significantly lower than its peak valuation near US$100 billion in 2022 and the estimated US$64 billion valuation from Series D+ funding in 2023.

Jefferies analysts, led by John Chou, cited concerns over Shein’s competitive advantages in a recent report. While Shein’s strength lies in its ability to rapidly bring new products to market, powered by low costs and a dense supplier network largely centered in Guangdong, those advantages may diminish as supply chain expenses rise. The brokerage set a target price of HK$26, suggesting the stock has further downside potential. An optimistic scenario, incorporating cost reductions through artificial intelligence and successful localization of supply chains outside China, could see a share price of HK$45, while a more pessimistic outlook could push it down as low as HK$16.

Additional challenges emerged when Australia and New Zealand announced recalls of Shein-branded contact lenses used for cosplay and makeup purposes, citing possible contamination with Burkholderia cepacia complex bacteria. New Zealand’s Ministry of Business Innovation and Employment highlighted reported cases of eye infection linked to the bacterium overseas. Shein had not responded to requests for comment as of the latest reporting.

Jefferies further noted that Shein’s profitability is increasingly pressured by changes in import rules in key markets such as the United States and European Union, where tariffs on low-value parcels have raised operational costs. The firm also pointed out that Shein’s efforts to diversify production outside China—in countries including Brazil and Turkey—have led to higher expenses. Developing overseas supply chains comparable to those in Guangdong would require substantial new investments in manufacturing and infrastructure, potentially eroding Shein’s historical cost advantages.

The core challenge, Jefferies concluded, lies not in Shein’s ability to generate new products quickly, but in whether it can sustain those efforts profitably amid a changing global retail and supply environment.