Risk-on sentiment has propelled a stronger equities market in June

Greater China Sales Traders

Northbound Trading

  • A total of 42.6 Billion RMB (6.20 Billion USD) landed in China A-shares market in June via Northbound trading, a drastic turn of capital momentum following May’s record outflow at 53.7 Billion RMB.
  • The month accounted for 18 trading days with 4 days netting cash outflow, against only 2 net buying days in May.
  • The year-long-standing trade tension between US and China has taken a breather as President Trump revealed signals of resuming discussions between the highest officials from the 2 countries ahead of G20 meeting, sending optimism to the market that a trade resolution may become seemingly possible in the short-to-medium term. SHCOMP index picked up +2.77% and and SICOM +2.86% in the month.
  • In June, the PBOC injected 1.57 Trillion Yuan (228 Billion USD) into the market through open market operations according to bank data. With the brief relief in trade relations, the market reverted to capitalize on an improved funding liquidity amid a strong Chinese Yuan against the dollar. That explained the major support of A-shares market in the month.
  • Mainland Hydropower sector were also under spotlight in June after most listed companies in the space completed the hydropower station development and are willing to share operation profit by gradually increasing the dividend pay-out ratio. The overall dividend pay-out ratio was up from 32% in 2014 up to over 50% to date.
  • With the support from PBOC, northbound traders may, for the first time, obtain Renminbi (RMB) and conduct the related foreign exchange hedging based on the onshore exchange rate through the relevant Hong Kong banks. HKMA issued guidance on 21-Jun to allow greater funding and hedging flexibility for foreign traders which in turns will boost the attractiveness and convenience of stock connect trading

Northbound Top 10 Names

Southbound Trading

  • Southbound netted inflow 26.4 Billion HKD (3.39 Billion USD) from China traders resumed confidence in Hong Kong equities along with improving trade optimism and valuation level.
  • The month booked only 2 days with net sell as bidders piling up to catch the falling equities after the May sell-off from a suppressed market sentiment.
  • Hang Seng Index reclaimed 6.10% in June after a 10% loss the month earlier. The index now stands at 10% up YTD as the investor confidence accumulates from brighter speculation on G20 outcome.
  • Mainland traders also made use of the widening gap between the onshore (A-shares) and offshore (H-shares) prices of dual-listed shares and poured in cash to add the cheaper HK stocks through southbound trading
  • During the last week of June, the Hang Seng Stock Connect China AH Premium Index rose to 129, the highest level since March 2018, with mainland equities trading at nearly a 30% premium to their Hong Kong counterparts.
  • The upcoming inclusion of Meituan Dianping (3690 HK) in stock connect trading drove the share price up 13% in the month. Capital may chase the stock in the short term as inclusion nears.

Southbound Top 10 Names

HK Jun IPO recap

  • Precious Dragon (1861) runs an automotive beauty and maintenance aerosol product business in Hong Kong. Auto sales in Mainland China and Crude Oil pricing will have direct influence on the company’s profit margin as it predominantly offers painting and coating product for automobiles as well as personal care products via online retailers. Shares down 26.71% to date (5-Jul) since trading debut.
  • Impro Precision (1286) manufactures casting and machined components for autos, aerospace, medical, energy and agricultural customers. Company is being regarded as the world’s Top 10 precision component makers with factories in China, Turkey, Germany, Mexico and Czech. Healthy fundamentals from 2018 (Revenue at 3.749 Million HKD at 23.0% Growth) is one of the strongest seller points among its peers. Shares up 24% in less than 1 week after debut.
  • Tu Yi (1701) provides travel agency and bespoke services worldwide with particular destination focuses in Australia, New Zealand and Japan. The company also took part in hotel acquisition and development business in 2015. Industry outlook is considerably competitive despite the higher entry barrier. As at the end of 2018, there are 29,000 licenced travel agencies in China, and 4,500 outbound agencies. Among the group of outbound agency, the top 5 market players accounted for the total market share of 18.8%.
  • Shinelong Automotive (1930) produces a wide variety of mold products for automobile and home appliances use. Company is considered the second largest mold equipment maker, accounting for 4.90% of the market. Sales proceeds from IPO are mainly used for purchasing new manufacturing equipment, software, and as operating cash and rental for new factories. Shares gained 26.14% within 1 week of listing.
  • Am Group Holdings (1849) offers search engine marketing, creative and technology, and social media marketing services. Shares declined 24.6% on the first day of trading with further losses following in the subsequent days. Share has dropped 45% from debut date until 5-July
  • Cssc Hong Kong Shipping (3877) runs a ship leasing and broking business operating in Hong Kong, recognized first Hong Kong listing of its kind. It is also the first offshore subsidiary and financing vehicle for parent CSSC. 60% of IPO proceeds will be used to strengthen the capital foundation for its ship leasing business, 30% on marine equipment aftersales leasing and 10% as operating cashflow and company use. Shares are down 21% to date.
  • China Tobacco (6055) engages in international tobacco trading business and serves customers from China and Southeast Asia. The company is the biggest maker of cigarettes in the world with investor drawn in because of the scarcity of listed assets in China’s massive cigarette market. Some traders even perceived the star listing candidate as the tobacco version of Kweichow Moutai and expect the premium is here to last. Stock was up as high as 300% from debut as at close of 2-July.

HK Jun IPO Outlook

  • 14 candidates are under the HK IPO pipeline in July 2019.
  • Budweiser Brewing is catching the attention of the IPO market next month with 6 brokerages in Hong Kong setting aside a combined 56.1 Billion HKD in anticipation of retail investor’s demand. The demand in HKD is also creating liquidity pressure on the currency market and is also one of the major reason for recent HIBOR rally.
  • Price range represents a market capitalization of 54 to 64 Billion HKD before over-allotment option is exercised
  • Company will price the offering on 11-July with trading to kick off on 19-Jul
  • JPMorgan and Morgan Stanley are joint sponsors of the deal according to a preliminary prospectus
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