China and Hong Kong equities are to withstand turbulence
Greater China Sales Traders
Summary: October was an active month for public listing but not all IPO candidates managed to gain in valuation with substantial headwind from several fronts. Stock Connect activities managed to exhibit sustained demand from both north and south despite clouded outlook. Apparently, equities in Hong Kong and China are well suited to withstand challenge of time.
Stock Connect and HK IPOs
- Northbound Traders netted 31.4B RMB (4.46B USD) of foreign inflow into the Chines stock connect market via the Shanghai and Shenzhen tranche. The dialled back volume would appear arguably reasonable as the A-shares market was closed for 5 days for the celebration of National Day as well as the pending US-China agreement of a potential Phase 1 deal which has yet to unveil further concrete details and terms.
- October is traditionally a month with lesser activity given the Chinese population will take time away from trading and business for personal use. Ever since trading resumed from weeklong holidays, market turnover has been in steady range under the lack of grander market catalysts with geopolitical tension largely stagnant around the holidays.
- China’s official manufacturing purchasing managers index (PMI) dropped to 49.3 in October from 49.8 in the earlier month. It is the sixth consecutive month in contraction territory. Experts commented the decline suggests that manufacturing activity was shrinking at a quicker pace as trade tensions with the US lingered for a prolonged period of time
- The Federal Reserve officiated another 25 basis point interest rate cut to bring the target interest rate to the 1.50-1.75 range via the operation of FOMC on 30 October. The third rate cut this year. Meanwhile, PBOC’s silence stance on adopting a relaxing approach on its monetary policy similar to its western counterpart was the main driver for the weakened PMI reading in October.
- Granted that even when the State government is in favour to adopt easing approach to shore up domestic growth like the other central banks, there isn’t much capacity to for the policy maker to manoeuvre an aggressive monetary as it will inevitably pump up the property market again and add fuel to inflating food prices. This is apparently not the plan for the China government who seeks to restore steady growth on a healthy pace.
- China launched its first 5G network after the last trading day in October, setting up the country to leapfrog other nations in deploying the superfast cellular technology at the centre of a technological arms race between the US and China.
- The three major state-owned wireless carriers in the name of China Mobile, China Telecom and China Unicom will open the country's 5G network for public use in about 50 major cities. It is true that wireless carriers in the U.S. and South Korea have already been offering 5G for months, China is expected to sprint ahead in the coming weeks. The Chinese government has made building 5G a national priority, clearing red tape and reducing costs so the three wireless providers introduce the new technology as swiftly as possible.
Northbound Top 10 Names
- In contrast to the shrinking foreign capital flow into A-shares market, China funds increased outflow from mainland into Hong Kong equities. China traders shored up 19.0 Billion HKD worth (2.42 Billion USD) of local equities during the month when the HSI-led stock market was clouded by on-going political unrest in the city, but financial markets have become increasingly unmoved by the confined sentiment in the city.
- HSI retrieved the significant 27,000 mark just before the end of October after a weak start of the month when traders and speculators expressed concerns on the development of local protests at first. But momentum was soon picked up entering into the mid month as the US-China trade negotiations was reported with a potential Phase 1 deal breakthrough. Despite the lack of deal content disclosure and also the cancellation of meeting in Chile, sentiment began to shift and traders re-evaluated buying opportunities on the market.
- HSBC became the first local bank to slash its prime lending rate in 11 years. The cut of 12.5 basis points will bring the prime rate target to 5.0% in response to the Fed’s easing move and a challenged macro outlook which were plaguing all markets globally. The bank will also cut its interest rate for Hong Kong dollar savings deposits to 0.001% from 0.125% and U.S. dollar savings deposits to 0.001% from 0.10%.
- However, one particular impact caused by the prolonged civil unrest have appeared on the retail sales front. Let alone the Sep retails sales fell less than the market consensus, it should not be interpreted as a sign that the dire situation is improving as it was due to a lower base from the year earlier. Analysts see slim chance for retail sales bottoming anytime soon with the unrest dragging on and economic headwinds escalating. Hong Kong was undeniably awash in recession pressure in 3Q, and the city is expected to remain in contraction in 4Q due to low consumption.
- Casino revenue for October fell 3.2% from a year earlier to 26.4B patacas. This is a better reading when compared with median estimate of 4% loss from surveys compiled from the street consensus
Southbound Top 10 Names
HK Oct IPO recap
- CMGE Technology Group Ltd (302 HK) - Mobile Gaming Developer licensed with several reputable franchises to publish block buster content in the gaming space. The company listed on NASDAQ in 2012 and was once the first Chinese mobile game company to list on on an US stock exchange. With a listing tag of HK$2.83, the company raised over HK$1,300 from its listing in Hong Kong which added to its total market cap of 7.87B HKD. Shares marked over 20% higher than its listing price within 2 days of trading.
- YCIH Green High-Performance-H (1847HK) - The company manufactures and sells higher performance concrete, new green super retarded concrete, high throwing self-compacting concrete, ultra-high and ultra-long pumping concrete among other materials and markets its products throughout China. Company emphasize focus on sustainable development and environment friendly infrastructure which will likely benefit along with the state’s reform direction under a longer run. Shares are however under pressure in the brief number of days since debut, currently down over 20% from listing price.
- Ascentage Pharma (6855 HK) is a globally-focused, clinical-stage biotechnology company. The company develops novel therapies for cancers, hepatitis B virus, age-related diseases and more. The company has a pipeline of 8 drug candidates which have completed 28 Phase I/II clinical trials for launch in overseas markets. Business footprint covers China, the United States and other countries. Shares seem to have arrived at a short-term bottom on 31-Oct and now is on course for rebound. Stay tuned for this strong potential candidate.
- Town Ray Holdings Ltd (1692 HK) produces and sells household appliances in a wide range of garment care machines and cooking devices. The company headquarters in Hong Kong with production facilities in Huizhou for R&D, procurement, production and QA functions. Town Ray established strong presence in electrothermal space with leading technology to position themselves as market top players. Shares came within consolidation range at $0.70 during the latest 3 trading sessions.
- Jilin Province Chuncheng Heat (1853 HK) operates as a heat service provider in Jilin Province. The company supplies heat procured from local cogeneration plants and coal-fired boilers and also participated in engineering construction and maintenance, design services and electrical instrument repairs and maintenance. Share price returned to its listing price range after struggling to stay above $2 mark a week after its debut. As the winter season approaches, demand for heat consumption is set to rise further and will improve the company’s fundamental with the new price adjustment from state council.
- China Oriented International (1871 HK) operates driving schools that provide training courses in China. Company runs a niche business in China few competitions at this point of time. But traders are also struggling to find a compelling outlook to warrant the company’s value at current listing price level. Shares headed over 50% lower within a week of listing date.
- Snack Empire Holdings Ltd (1843 HK) runs Food and Beverage business offering Taiwanese snacks and drinks through outlets and restaurants. The company has customer footprint throughout Singapore, Malaysia, Indonesia and the United States. Share price once surged as much as 1.87 times on its first day of trading but soon retreated all the way back. The downward trend continued from there on and the stock is now trading at 30% discount from its $0.65 listing price
- Sichuan Languang Justbon - H (2606 HK) provides property management services for residential and commercial estates, urban complexes and headquarter bases. Sichuan Languang Justbon covers services worldwide. The Hong Kong listing of this company is well sought after by institutional cornerstone investors who are convinced of the company’s business segment and outlook, current valuation and also financial management approach. Company is among the few winners who came out listing under a turbulent market backdrop in October.
- Accel Group Holdings Ltd (1283 HK) provides electrical and mechanical engineering services, afountain and plumbing engineering among other services in Hong Kong. The company has participated in high quality construction works for famous developers and architectural firms in Hong Kong since its establishment in 1992. Accel Group will target to use the IPO proceeds to improve corporate governance and expand management team by recruiting further talents, and in turns, take their presence in the industry to another level.
- Centenary United Holdings Lt (1959 HK) engages in the sale of motor vehicles and other integrated auto services. The company has customers from Dongfeng Nissan, Beijing Hyundai, FAW Toyota, FAW Volkswagen among other international brands. Like most other IPO candidates, trading of the newly listed shares had to face significant pressure under a wider market sentiment and has to recover 13% from current range before it can return to listing price.
- Green Future Food Hydrocollo (1084 HK) makes seaweed and plant hydrocolloid products in range of agar, carrageenan and konjak products in Hong Kong. Company to offer 200M shares globally starting at 1.16 apiece, with 10% of the size allocated for subscriptions in Hong Kong. With a modest listing price of HK$ 1.16, the shares found lesser friction trading in the seller’s market and marked progressively higher in the 2 weeks of trading since becoming public.
- Confidence Intelligence Hold (1967 HK) is an EMS provider in China offering comprehensive assembly 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. Champion of the month which managed to more than double up its share price from $2 to above $4 within 2 weeks of active trading.
- Hong Kong Johnson Holdings C (1955 HK) provides environmental hygiene services in the capacity of building cleaning, park and recreation centre cleaning and also street cleaning. Company’s services location is predominantly in Hong Kong. Shares once spiked 60% on debut date but then it gradually churned lower and broke its IPO price level. Shares is now 16% lower than listing price.
- CR Construction Group Holding (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. Shares soared as much as 178% on the first trading day in Hong Kong but also churned below its listing price on the subsequent trading days like many other IPO names. It is now trading at 22% discount to its IPO range.
- Euroeyes International Eye Company (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. The company provides refractive laser surgery, phakic lens surgery, lens exchange surgery and other services. The company will continue to setup joint venture partnership to step up their business coverage across Hong Kong and Shenzhen. Share is now trading at 31% premium to its IPO price.
- 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. Following the share’s skyrocketing performance on the second day after listing, the price trimmed lower almost every day thereafter as buyers’ sentiment faded on market under the challenging market outlook in October.
- Topsports International Hold (6110 HK) produces and sells sportswear products. The company manufactures and sells sports shoes, sports shirts and other products and markets its products in China region. Topsports led all IPO candidates with US$1.8 Billion raised from new issues. The report that it booked a double-digit topline growth with expanding gross profit margin is a valid explanation of why it is still favoured by traders and investors alike and gained 10% to date amid a lacklustre market ambient.
- 360 Ludashi Holdings Ltd (3601 HK) develops and sells personal computer and smart phone benchmarking and monitoring software. Founder Zhou Xiong Wei is a well-recognized pioneer in network safety product space. With a reputable founder behind, the software developer easily garnered buyers’ attention from the mass market and sustained its share price to well above it IPO range in largely a month of trading on secondary market. Shares is now buoyed at 84% premium to its $2.70 IPO price.
- Friendtimes Inc (6820 HK) is an integrated mobile game developer, publisher and operator with particular success in female-oriented games. Shares were raised with an admittedly lofty IPO price at $1.52 which majority of traders on market thought it is overpriced, hence consistent sell-off since its listing date.