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Wednesday, September 7, 2016, 00:21

Strong IPOs, rate hopes spark frenzy

By Duan Ting

Institutional and retail investors have been flocking to the Hong Kong stock market in droves following an overwhelming response to two initial public offerings (IPOs) both of which were heavily oversubscribed — one by more than 2,000 times.

The stunning performance of the latest share sales has been attributed to a strong recovery in market confidence, propelled by a slew of positive news, particularly the upcoming launch of the Shenzhen-Hong Kong Stock Connect and the prospect of an earlier anticipated US interest-rate hike being put off on news of weaker-than-expected US jobs statistics.

Hong Kong-based luxury interior designer Crosstec Group Holdings saw its shares oversubscribed by more than 1,061 times on Monday in a frenzy buying spree that was only the second-biggest so far this year.

In May this year, shares of local printing services provider Hang Sang (Siu Po) International Holding Co (HSSP) were oversubscribed by 2,181 times as they entered the market. The company’s share price closed at HK$2.34 apiece on Tuesday — about 70 percent higher than its offered price of HK$1.36.

Crosstec, whose shares are due to begin trading on the Hong Kong stock exchange next Monday, is offering 600 million shares at between 10 and 15 Hong Kong cents each, seeking to raise HK$ 90 million, of which 10 percent is reserved for retail investors.

Shrugging off global uncertainties and Brexit, Hong Kong’s equity market has witnessed a rally of 5,000 points from February’s low, fueled by a fresh round of buying. The benchmark Hang Seng Index climbed 138 points, or 0.58 percent, to close at 23,787.68 points on Tuesday on a turnover of HK$75.62 billion, hitting a one- year high.

Hong Hao, chief China strategist at BOCOM International, said the rally is gaining momentum as institutional and individual investors have kept their heads up for the Shenzhen-Hong Kong Stock Connect and with the market hailing the possible delay of another US interest-rate increase.

According to the US Bureau of Labor Statistics, US non-farm payroll employment rose by just 151,000 in August, extending the futility that August had experienced over the years, and lower than Wall Street’s estimation of 180,000, after an upwardly revised increase of 275,000 in July.

Hong said the increase in southbound quota usage under the Shanghai-Hong Kong Stock Connect is partly because the quota for Qualified Domestic Institutional Investors will be used up soon. He added that under the complicated marcoeconomic environment, investing in new listings is a stable profit strategy.

Jason Chen Yuguo, director of equity capital market at Ping An Securities, explained that, in the first half of the year, the stock market had been relatively quiet and sluggish, and investors were cautious about the returns. But now they’re seeing some investment opportunities in the market. As sentiment is improving, he expected the benchmark index to show  continuous upside potential in future.

Chen explained that, normally, shares of a new listing company with smaller funds raised are likely to be easily oversubscribed, with the share price being volatile on the first day of trading.

Hong Kong remained the world’s top market for IPOs in the first six months of this year with 40 new listings in the SAR, down 22 percent year-on-year, raising a total of HK$43.5 billion, according to global consultancy PricewaterhouseCoopers.

Market pundits, however, are optimistic about the outlook for the city’s IPO sector in the second half of this year, with a long queue of enterprises seeking funds, notably from the Chinese mainland.
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