Bigger exposure to small players hurts newcomers
China Telecom (Hong Kong)'s 17.22 per cent bounce since its share placement last week puts it head and shoulders above the performance of other stocks after recent fund-raising exercises.
At $5.90 yesterday, Pacific Century CyberWorks, for instance, is down 3.27 per cent since last month's placement at $6.10 a share even after a massive buy-back programme from the company.
Several initial public offerings (IPOs), in particular, have fallen flat since launching this summer.
Of four large IPOs made in the summer, only one - H share Great Wall Technology - is trading above its issue price.
Great Wall closed yesterday at $4.60 - 46.03 per cent higher than its issue price of $3.15 in August.
Shandong International Power Development is trading at $1.16 - a drop of 26.58 per cent from its issue price of $1.58 in June.
Pacific Century Insurance Holdings, at $4.15, is 33.91 per cent below its July issue price of $6.28.
Suffering the greatest are those who took a piece of the New World China Land offering in July - the stock is down 60 per cent at $3.80 from its issue price of $9.50.
Some pointed to new securities regulations that gave retail players bigger exposure to IPO distribution as adding volatility to new listings.
Under measures imposed this year, a minimum 10 per cent of an IPO must be offered to retail investors; more shares must be 'clawed back' or distributed to retail investors depending on the number of subscribers.
So, for instance, if an issue is up to 100 per cent oversubscribed, the clawback figure would increase to 50 per cent.
Pacific Century Insurance and Great Wall were 29 times and 97 times oversubscribed, respectively. Thus in the later case, 40 per cent of the issue was distributed to retail investors.
'Herein lies a problem of the retail clawback,' SG Securities said in recent research. 'The idea is sound, that retail should be given the opportunity to have meaningful participation in 'hot' deals but, as a class, they are not renowned for their long-term holding qualities.
'If market sentiment moves between subscription and listing, then the high retail component makes selling pressure huge.' Nevertheless, the worst performers seem to be those that did not build a large book during the subscription period - explaining, perhaps, why mainland oil group CNOOC may have decided to postpone its share offering last month after a weak book-building exercise.
Shandong Power was slightly undersubscribed and less than 10 per cent of the stock went to retail investors.