China and Hong Kong Equities

Greater China Sales Traders

Stock Connect Northbound Trading

  • April recorded a net outflow totalling 18.0 Billion RMB (2.67 Billion USD) from Northbound trading, highest single month outflow since the launch of SZ-HK stock connect in Dec 2016)
  • Out of 18 trading days in the month, 14 days booked net sell, amounting to 77% of trading days
  • For comparison purposes, both Feb and Mar booked net inflow of 60.3B and 4.4B respectively
  • Overseas capital inflow will likely slow down in the near term with A-shares equity valuations returning to par from oversold range after a dismal 2018
  • MSCI A-share inclusion will kick off their first step in late May. Foreign funding will progressively return to China equities from Q2.
Northbound Top 10 Names

Stock Connect Southbound Trading

  • April recorded net inflow amounting 13.3 Billion HKD (1.70 Billion USD) from Southbound trading.
  • Due to Easter Holiday arrangement in Hong Kong market, Southbound trading only opened 17 days in the month (1 fewer day compared to NB) with only the last 4 trading days after the Easter weekend holidays netting an outflow.
  • Hang Seng Index traded 18.18% up YTD as at 30-Apr and also marked the highest YTD reach at 30,280.12 point on 15-Apr, representing a 21.62% gain from 24,896.87 low on 3-Jan
  • Higher valuation in A-shares equities, along with the constant depreciation of Chinese Yuan and increasing volatility are the 3 main reasons for mainland investors turning to Hong Kong equities to diversify their asset allocation and hedging purposes.
  • Chinese investors also have more appetite in new economy sectors with higher international exposures. A lot of these names are not available within the A-shares market.
  • The capital outflow towards the end of April can be explained by the weeklong holiday beginning 1-May in China and investors would want to be side-lined while they are away.
Southbound Top 10 Names

IPO Recap - April 2019

  • B&D Strategic Holding (1780) is a contractor company providing engineering services in a wide range. Shares traded flat in grey market but managed to rise over 5% on the first trading day.
  • Shenwan Hongyuan Group H (6806) – a Chinese Broker who also has a listing arm in Shenzhen Stock Exchange – debuted trading with less than ideal performance so far amid weak sentiment surrounding Chinese brokers. Analysts also reckoned the offer price is set at a premium to other Chinese brokers among the peer.
  • Bonny International Holdings (1906) – company manufactures and sells seamless and traditional intimate wear products in PRC – received overwhelming responses (almost 95 times oversubscription!) during application period. Stock closed flat to offer price on first trading day with turnover at 49 Million HKD.
  • Design Capital Ltd (1545) closed 10% down on first trading day and traded another 18.5% lower on the second day despite heated subscriptions. Shares have accumulated 24.7% loss since listing debut. The Singapore company supplies furniture in wide range to retail customers worldwide.
  • Wai Hung Group Holdings (3321) is the only IPO name this month that makes steady gains since the second day after listing (as at 30-Apr). The listing company provides “fitting-out” interior decoration and maintenance services to both residential and commercial properties, in particular hotel and casino groups in Macau. The company is well positioned to ride on the recent expanding momentum amid casino space.
  • Zengame Technology Holding (2660) is another winner among April’s IPO candidates mostly benefiting from a “discounted” offer price. The stock jumped as much as 28% in gray market on the back of improving optimism in sector sentiment (i.e. relaxed game approval standards by regulators).
  • Shanghai Dongzheng Automotive H (2718) offers automotive loans among other financing products to customers for the purchase of luxury cars in PRC. Shares have seen its highs at 3.09 – less than 1% gain compared to listing price – but failed to make higher close thereafter despite the recent stimulus from NDRC to promote auto consumptions and related tax reform. Company is a spin-off from Zhengtong Auto Service (1728) carving out its financing arm from dealership business.

IPO Outlook – May 2019

  • Global equities have been rallying across the board this year with Hong Kong's benchmark Hang Seng Index traded up 12.5 percent YTD after a struggling 2018.
  • In terms of primary listings, Hong Kong had a stellar year with companies raising US$36.3 billion in 2018 (Highest of any major stock exchange). However, this year is likely to be thinner as company’s interest to go public diminishes under a relatively unsettling political backdrop.
  • Companies succeeded in coming up with a total worth of US$4.1 billion in Hong Kong IPOs so far in 2019, compared with US$7.7 billion raised from Nasdaq, according to Refinitiv.
  • 7 candidates are under the HK IPO pipeline in May 2019. 3 of the to-be-listed companies are domiciled in Mainland China running businesses among online media, biotech and environmental (hydro) services space.
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