26 October 2016
Funds are betting that mainland property firms will benefit from monetary easing. Photo: Bloomberg
Funds are betting that mainland property firms will benefit from monetary easing. Photo: Bloomberg

Stock market under shade as IPOs share liquidity

The boost from China’s latest interest rate cut for the Hong Kong stock market has already faded out.

The Hang Seng Index has failed to break the resistance level of 28,000 points, and dropped 1.12 percent to close at 27,407 points on Tuesday. The Hang Seng China Enterprise Index also fell 1.48 percent, moving in the opposite direction of the A-share market.

Also, the daily market turnover came close to a recent low of HK$136.4 billion, in a sign that mainland capital flowing into Hong Kong market continues to dwindle.

Meanwhile, a number of heavyweight stocks have made share placements in recent weeks, which further weighed on the market.

Optimists view the market decline as a healthy correction and some investors are switching to third and fourth-tier stocks.

However, rampant speculation on small stocks like Yan Tat Group Holdings (01480.HK) and Jicheng Umbrella Holdings (01027.HK) has already drawn the attention of the Securities and Futures Commission. Therefore, speculation will cool off in the short term.

The A-share market has stolen the thunder, while Hong Kong shares are only supporting the show.

The red-hot market has prompted a number of companies to raise funds through share placements. Fosun International (00656.HK) has issued 465 million shares at HK$20 per share to raise more than HK$9.2 billion this week.

The fund will be used for potential insurance acquisition, and Alibaba Group Holding Ltd. founder Jack Ma and Tencent Holdings Ltd. chairman Ma Huateng have joined the private placement.

The two tech founders have also participated in the share placement of China Taiping Insurance Holdings (00966.HK), which sold 486 million shares to raise HK$13.2 billion.

Both stocks have steadied above the issuance price, with Fosun closing at HK$20.45 on Tuesday.

China Resources Land Ltd. (01109.HK) is among the companies tapping investors in block trades recently. The company intends to raise HK$9.5 billion by selling 380 million shares at HK$25.5 per share.

It could be a prelude for the next wave of mainland property firms raising funds through block trades. Most of these stocks have remained steady after their share placements as they’ve already posted substantial gains.

Market rumors suggest that the shares offered by China Resources Land have been mainly subscribed by long-only funds. They expect mainland property firms to benefit from monetary easing and bet on future asset injections from the parent company.

In contrast, some smaller stocks have posted sharp gains after their share placements. Heng Fai Enterprises (00185.HK) jumped 19.4 percent after Joy Town acquired its stake. See Corp. (00491.HK) raised HK$300 million through private placement, and the stock soared 17.82 percent at the close, 47 percent higher than the issuance price.

Investors could bet on small stocks that have such potential. Shinhint Acoustic Link Holdings (02728.HK) surged 28.7 percent to HK$2.15 after a big shareholder increased its holding by 12.9 million shares. The move indicates that hot money is actively searching for potential plays.

Some IPO deals also boost the prices of relevant stocks. A HK$15 billion IPO for a mainland nuclear company has driven up stocks like Dongfang Electric Corp. (01072.HK), Shanghai Electric Group (02727.HK) and CGN Power (01816.CN).

Also, the forthcoming listing of Huatai Securities has also boosted market sentiment for GF Securities (01776.HK) and China Galaxy Securities (06881.HK) amid a red-hot A-share market.

New listed firm Tic Tac International Holdings (01470.HK) has seen share price fall to 97 HK cents after touching a high of HK$1.16, 43 percent above the share offer price. Investors should take short-term bets on such stocks without strong earnings support.

This article appeared in the Hong Kong Economic Journal on May 13.

Translation by Julie Zhu

[Chinese version中文版]

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Department of Investment Analysis at HKEJ

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