The new launch of STAR Board have sent glimpse of hope across the equity space

Greater China Sales Traders

Summary:  Traders’ buying spree in both Hong Kong and China has taken a step back from rapid activities in June as trade war unfolded with elevated uncertainty in the playbook. However, despite the overall bitter investment environment, the stability measure adopted by China and the new launch of STAR Board have sent glimpse of hope across the equity space.

Stock Connect and HK IPOs

Northbound Trading

  • A relatively sluggish July has netted only 12.0 Billion RMB (1.71 Billion USD) inflow into China A-shares market for the month via Northbound transactions, which is equivalent to a 72% decline from June’s 42.6 Billion RMB.
  • 8 days ended with net sell out of the total 22 trading days in July.
  • Pressure on China’s factories eased a little in July driven by growth-supporting measures from the government, but overall manufacturing activity remained in contraction territory as the prolonged trade war tension dragged on and further dented the US export orders.
  • Softened industrial profits since the second half of 2018 as the economy slowed and the U.S.-Sino trade dispute escalated further drove many industrial firms to put off business decisions and scale back manufacturing investment.
  • U.S. and the Chinese negotiators ended a brief round of trade talks on the last day of July but with little sign of progress whilst agreed to meet again in September, further dragging on an uneasy truce in a year-long trade war between the world’s two largest economies.
  • Market speculations have China going to adopt proactive fiscal policies, which include cutting fees and tax, boosting infrastructure investment, while keep up with maintaining prudent and stable monetary policy in the longer term. Thus, the sentiment has been reflected as buying support in the infrastructure and lenders space.
  • China has officially launched STAR Board trading on 22-Jul with 25 listed names coming from innovative technology industry. Most stocks on the new trading board extended gains throughout the first week with only 1 stock ended slightly lower compared to the first listing price. It is a structural opportunity in China’s tech sector for China traders considering Beijing’s urgency to seek tech independence amid a tiring trade war with the U.S. However, Star Board is only available for domestic investors for the time being. It will onlybe offered via stock connect trading at a later stage.

Northbound Top 10 Names

Southbound Trading

  • China traders showed some restraints in chasing Hong Kong equities amidst strong anticipation of fed’s rate cut. Southbound downplayed the net inflow size to 19.7 Billion HKD (2.51 Billion USD) as some investors stayed on the sideline as they wait for further development over the U.S. and China negotiation.
  • Hong Kong has witnessed an unsettling July as a series of local protests spearheaded by anti-government activists have grown increasingly violent for conflicts deepened after persistent display of extreme behaviors from both sides. Businesses were disrupted in scales large and small while workers across all industry were forced to make shift with the untimely action in the city.
  • HSI index slid 2.68% lower for the month, partially because of the rising tension from local protests but a stronger force was driven by weak PMI and trade data from China.
  • Flagship HSI constituent in the name of Tencent (700 HK) has also posted a 3% gain from the last 2 weeks in July as the internet giant announced partnership with Qualcomm (QCOM US) to expand gaming devices and 5G developments.
  • Traders also await for the inclusion of Hansoh Pharmaceutical, China Tobacco, Weimob, Xiaomi and Meituan in the Southbound trading universe in a very near future, further expand HK shares selection for mainland investors’ appetite.

Southbound Top 10 Names

HK Jul IPO recap

  • Kimou Environmental (6805 focuses on investment in the development and operation of large-scale electroplating industrial parks with customers in Hong Kong and China. Shares were initially offered at $1.33 per share but have since been trading lower and closed as low as $0.94 near month end, posting a loss of 29% in 11 days.
  • Analogue Holdings (1977) operates as an investment holding company and provides building services, engineering building, software development, escalator installation and maintenance services. Shares have been struggling to garner consistent support from secondary market as delay in mechanical and electrical projects dented earnings outlook. The company reported profit warning on 31-Jul, a mere 19 days after the listing debut.
  • CIMC Vehicles (1839) manufactures trailers and truck vehicles among other equipment worldwide and sold 265 million shares at $6.38 apiece. The company is a unit of China International Marine Container (000039 SZ). The new listing company intends to use the IPO proceeds to build new manufacturing or assembly plants in the US and Europe, for research and development and to repay debt.
  • Manpower Group Greater China (2180) provides human resource solutions for companies in GC region debuted trading on 10-Jul with listing price HKD 9.90. Business footprint covered 130 cities in the country running with more than 20 offices to service 22,500 clients. Share price commenced on steady rally only the second week after debut and was closed as high as 12.50 as at end of July, which represented a 26.26% gain from IPO price.
  • Khoon Group (924) is a mechanical and electrical service provider including customization and installation of electrical systems, assisting to obtain statutory approvals, testing and commissioning for customers in Singapore. IPO price was set at HK$0.50 and exceeded in drawing attention from investors on secondary market to close 132% on the first day of listing. Share prices then returned back to a range closer to IPO level later in the month but still managed to track 76% higher and close at $0.88 on the last day of July.
  • Homeland Interactive Technology (3798) develops board games, distributes and markets its products throughout China. Share price has once traded as high as $2.64 - amounting a 96% gain from offer price - on its debut date. But the performance did not sustain in the days that followed and reversed back to 1.58-1.76 range until the end of month. Market is generally wary for gaming developer names as it is one of the more sensitive area where regulators could possibly intervene and impose censorship if popularity gets too hot or situation becomes warrant.
  • Belgium brewer in the name of Anheuser-Busch InBev NV decided to withdraw the HK listing of Budweiser Brewing Company APAC on 13-Jul as the parent company deemed it the best interest to suspend the IPO process of its APAC arm without a fair valuation of its IPO price under the current market participation. The decision leaves the parent without the IPO proceeds it had sought to help pay down debt and fund acquisitions. On the market perspective, it also dampened the IPO momentum which could have doubled the 9.44 Billion tally from the 79 other listings this year.

HK Aug IPO Outlook

  • Hands Form – A construction and decoration company is looking to capitalize cash from issuing 650 Million shares at 0.20 HKD apiece. Application date period is between 6-Aug and on 9-Aug.
  • August is traditionally a less active month for new listing in Hong Kong due to lower market participation in the summer holiday. In particular this year, the overall sentiment has been suppressed by prolonged trade disputes between US and China which dampened the trading appetite for investors to new shares.

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