Hong Kong to remain as IPO Haven

Greater China Sales Traders

Northbound Trading

  • Traders brought in 64.7 Billion RMB (9.11 Billion of USD) of foreign capital to China A-Shares markets in Shanghai and Shenzhen via the stock connect tranche in the month of September, a record amount representing 4.9 times of last month’s inflow, despite political turbulence on several fronts.
  • Notable Northbound turnover of 78.5 Billion RMB was seen on 20-Sep with net inflow as large as 14.9 Billion RMB, an amount larger than the total inflow from entire August (13.2 Billion RMB).
  • China marginally cut its new one-year benchmark lending rate LPR for the second month in a row as the central bank sought to aid market with lower borrowing cost amid trade struggles, which were subsequently translated as improved capital flows and price support from the domestic segment in the China market.
  • Earlier on in the month, the State Administration of Foreign Exchange (SAFE) announced the abolition of investment quotas for QFII and RQFII schemes which were launched as 2002 and 2011 respectively. Though the implementation date has yet to be confirmed, the move was seen as a welcome development for international markets.
  • The availability of stock connect trading in recent years has QFII and RQFII restrictions becoming less of a concern over the years as foreigners have alternatives to gain access to the Chinese capital and fixed income markets alike.
  • Towards the end of September, speculations on White House contemplating investment restrictions on Chinese companies dented global traders’ sentiment. While no concrete details have been acknowledged by any authority, the chatter headline was weighing on A-shares trading momentum.
  • Northbound trading via stock connect will close for the first week of October in observance of national anniversary celebration and reopen on 8-Oct Tuesday.

Northbound Top 10 Names

Southbound Trading

  • China traders netted shallow inflow of 9.6 Billion HKD (1.22 Billion USD) into Hong Kong equities for September during a time when the city’s headlines continued to follow local conflicts and social unrest developments. The number was down from last month’s 58.6 Billion HKD and July’s 19.7 Billion HKD, a significant contraction in the total turnover on equities which were previously branded as bargain valuation by the same group of traders the month before.
  • Hang Seng Index tested key level at 26,000 repeatedly over the course of final week in the month which also marked a quarterly end when index rebalancing is a common driver, yet the index marginally made to close at 26,092.27 without further chaser in the HKEx-listed companies.
  • As traders found themselves sitting among lackluster trading in Hong Kong names, and in particular when the main index in HSI embarked on a bearish channel, southbound funds have yet to identify a conviction signal to enter the local equities market, with majority of market view expecting Hong Kong stocks to head lower when conflicts are seen at multiple fronts.
  • Diminishing bids in HK markets were also partly evident by the main U.S. equity index in S&P and Dow, which have peaked in mid month but have set out to retreat from record highs under the lack of convincing drivers.
  • Fleeting actions and comments from China and US with respect to tariff headlines also added to the softened trading in HK stocks. HK and China equities alike were driven by the whipsaw development between Washington and Beijing. For now, a relative optimistic turn of events is an agreeable date for next meeting between the high ranked officials from both sides while China agreed to shore up purchase of US agricultural products in the likes of soybean and Pork from the US.
  • Volatility in HSI returned to move between 18.0 and 21.0 which was considered the bottom range of the August reading
  • Same as northbound stock connect, southbound trading will remain closed for the first week in October and reopen on 8-Oct Tuesday.

Southbound Top 10 Names

HK Sep IPO recap

  • Budweiser Brewing APAC (1876 HK) – A world renowned brewery name who is directing their marketing effort to focus on APAC region in particular Greater China. Company initially planned to list on HKEx in July but subsequently pull over the arrangement until September when the company returned with a smaller offering size. Company’s shares extended gains on trading debut and traded 4.44% higher in a single day. The company is also set to join the Hang Seng Composite Index on 16-Oct as it meets the “fast entry rule” laid out by Hang Seng Indexes Company. The momentum will likely carry further in the following days as brewery stocks are traditionally defensive in nature.
  • TBK & Sons Holdings (1960 HK) – A building contractor offering plants constructions, oil and gas infrastructure construction services in Malaysia. Shares jumped a remarkable 60% on his trading debut on 27-Sep.
  • LFG Investment Holdings (3938 HK) provides financial advisory as well as securities dealing and brokerage services for clients residing in Hong Kong. Shares closed 36.3% lower on first day of trading but recouped some losses on the second day with 27.1% gains. Pricing has yet to establish a stabilized trend with the limited days of active trading on record.
  • Shanghai Henlius Biotech (2696 HK) develops and produces monoclonal antibody biosimilar drugs and is backed by Shanghai Fosun Pharmaceutical. On the first trading day, the company’s share opened 5% lower than its IPO price of $49.40. Biotech companies generally share higher entry costs and innovation standard which, in turns, translated to longer timeframe to reach break point but at the same time enjoy lesser industry competition due to patent right protections. Company expects to launch 6 new drugs in the next 36 months.
  • S&T Holdings (3928 HK) runs construction services and property investment business in Singapore whose share price surged as much as 14% on the debut date. The shares followed larger markets and edged lower on the lack of bidders under a lethargic trading ambient in September. The company also focuses on civil engineering works in groundwork, drainage and piling and also provides logistics and transportation services for construction materials.

HK Oct IPO Outlook

  • The Hong Kong IPO market returns with better activities in the month of October which marks the start of the final quarter in 2019. A total of 15 candidates are registered in the pipeline to become HKEx-listed shares this month.
  • Chinese integrated mobile game developer in Friendtimes Inc (6820 HK) will be raising capital in HK for its continued operations. The award-winning company once made to the list of Top 50 Internet Enterprise in Jiangsu Province in 2019.
  • New sportswear maker in the name of Topsports International (6110 HK) will join the rank of Shenzhou International and Yue Yuen Industrial in becoming another supplier to global sportswear brands.
  • 360 Ludashi (3601 HK) develops and sells personal computer and smart phone benchmarking and monitoring software. Founder Zhou Xiong Wei is a reputable pioneer in network safety product space.
  • Xinyuan Property Management (1895 HK) provides property management services and offers cleaning and sanitation, safety and security, gardening and parking space management among other services and focuses clientele within Mainland China.
  • EuroEyes International (1846 HK) serves clients across Germany, Denmark and China with licence to provide a wide range of surgery operations specialized in the correction of refractive disorders.
  • Environmental Hygiene services provider in Hong Kong Johnson Holdings (1955 HK) to run building, park and recreation center cleaning services in Hong Kong.
  • CR Construction Group (1582 HK) engages in hotel, university, hospital, villa and other construction business in Hong Kong. Company was previously owned by China Resources Group until it was acquired by China Zhejiang Construction group in 2014 and became its ultimate parent company.
  • Hybrid Food Maker Green Future Food Hydrocolloid (1084 HK) supplies seaweed and plant hydrocolloid products in range of agar, carrageenan and konjak products in Hong Kong. Company to offer 200M shares globally starting at 1.16 apiece, with 10% of the size allocated for subscriptions in Hong Kong.
  • Confidence Intelligence (1967 HK) is an EMS provider in China offering comprehensive assembling and production services of printed circuit board assembly and offer R&D, procurement of raw materials, quality control and logistic services. Company looking to offer 6,250,000 shs Hong Kong at $2.50 each as the upper bound of pricing range.
  • Centenary United Holdings (1959 HK) engages in sale of motor vehicles and other integrated auto services. The company conducts auto 4S outlets offering Nissan, Hyundai, Toyota, Volkswagen among other brands. Also carry out side business including repair and maintenance services, as well as auto insurance agency services.
  • Engineering services provider to offer electrical and mechanical engineering services. Accel Group Holdings (1283 HK) will list on 18-Oct with target to offer 200M shares with pricing range from $0.65-0.75. 20M will be raised through the public offering channel with the rest (180M) subjected to direct placement.
  • A Food and Beverage group selling Taiwanese snacks and beverages through outlets and restaurants. Snack Empire Holdings (1843 HK) conducts business in Singapore, Malaysia, Indonesia and the United States.
  • Jilin Province Chuncheng Heating Company (1853 HK) operates as heat service provider in Jilin Province. The company also offers engineering construction and maintenance, design and electrical instrument repair services.
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