Photographer: Paul Yeung / Bloomberg
Photographer: Paul Yeung / Bloomberg
The days of massive first-day pop in Hong Kong’s IPO may be coming to an end.
Even as the pandemic spread throughout most of 2020, the IPO and new listings of the Chinese offshore city were in high demand from institutional and mom-and-pop investors alike. Since most of the new stock sales made big gains on the first day of trading, investors’ euphoria was justified.
That was then. Investors’ largely winning game of last year to pile in and exit IPOs after they debuted is no longer a slam-dunk: 31% of thirteen IPOs that raised more than $ 100 million this year made losses on day one, almost double the 17% in 2020. According to data collected by Bloomberg, the first day showed a gain of 2.1% in 2021 from 5.7% last year.
The volatility fueled by the large rotation into previously unloved stocks sensitive to economic swings from high-valued technology and healthcare is to blame, according to investors. Others also pointed to concerns about tightening policies in China, as this would weigh on investors’ risk appetite for new stocks.
“Most of the IPOs performed really strongly last year, but I don’t expect these kinds of moves this year,” said Joohee An, a fund manager at Mirae Asset Global Invest (HK) Ltd. Investors will be “more cautious” as market liquidity “won’t be as plentiful as it used to be,” she added.
Hong Kong bankers work around the clock as IPOs, SPAC’s Surge (1)
Shaky performance
For clarity, mentions by Kuaishou technology and New Horizon Health Ltd. still performed extremely well in February, with stocks more than doubling on day one.
But lukewarm performances after the listing are on the rise. Chinese household insecticide company Cheerwin Group Ltd. fell as much as 20% on the first trading day last week. Biopharmaceutical company SciClone Pharmaceuticals Holdings Ltd. finished its debut on March 3 flat and is now trading 8.6% below its bid price.
The secondary listing wave of US-listed Chinese companies has not always had glowing debuts in Hong Kong. Autohome Inc., a Chinese online car sales website with its primary listing in New York, discontinued its Hong Kong debut on Monday with a modest increase of 2%.
Not everyone is concerned, given the growing concern expressed by some that world markets were in bubble territory.
“If you have these deals that aren’t doing well, it’s basically telling you that people are still careful about what they’re investing in and what they’re not investing in, which is a good sign,” said Sumeet Singh, head of research at Aequitas. Research in Singapore, which publishes on Smartkarma. “It means the market is doing well.”
Reality Check
The following multi-billion dollar quotations of Baidu Inc. and Bilibili Inc. will be closely watched to see if Hong Kong’s IPO market still has steam given their size and high profile as technology companies.
Baidu, which has priced a nearly 3% discount against its US-traded shares, will launch on March 23. Investor demand for its offering has been strong, with retail investors placing orders for nearly 100 times the shares made available to them, one person familiar with the matter said. Bilibili, the video streaming platform that aims to raise a whopping $ 3.2 billion in a second list, plans to debut on March 29.
“I’m not worried at all,” said Oliver Cox, one best-performing fund manager at JP Morgan Asset Management, Overall, “the quality and long-term earnings growth prospects of the companies we see coming to the market are still very high and IPO pricing is not affecting that,” he said .
Read: JPMorgan Fund with 100% Gain in One Year Focused on Asia Tech IPOs