Hot money chasing mainland listings fires up market fever
China-focused plays, such as Norstar, garner overwhelming investor response
Recent initial public offerings (IPOs) from mainland companies have received an overwhelming response as hot money continues to flow into the market and investors bid up China-focused plays.
The retail tranche for Norstar Founders Group, a mainland vehicle parts manufacturer, was 120 times subscribed and its institutional tranche 22 times covered, according to market sources.
The retail tranche of Chinese pharmaceutical maker Jiwa Bio-Pharm Holdings was almost 157 times subscribed and its institutional tranche 2.5 times covered.
'There is too much cash in the market,' Atlantis Investment Management managing director Yang Liu said.
In the past two weeks, overseas funds have poured into Hong Kong - pushing up daily stock market turnover to record highs - as investors hope for a reflation of asset prices amid improving sentiment towards the domestic economy.
Pricing for the Norstar and Jiwa Bio-Pharm offers were set at the high end of their indicated ranges.
Norstar shares were priced at $1.33 each - the top end of its indicated range of $1.08 to $1.33, according to the sources. Jiwa Bio-Pharm shares were set at 48 cents each, near the top of its 43 to 50 cents range.
Ms Liu said the offerings were cheaply priced.
At $1.33 each, the Norstar shares were set at six times expected forward earnings of 22 cents per share. The Jiwa offer at 48 cents represented a multiple of six times estimated earnings of eight cents per share.
This compares with a price to earnings multiple of 11 times for the H-share index and 17 times for the Hang Seng Index.
With the Hang Seng now past 11,700 points, Hong Kong stocks were now beginning to look a bit pricey, UOB Kay Hian director Steven Leung Wai-yuen said. With hot money hunting for different investments, IPOs are another outlet.
'Overseas interest in China-concept stocks remains strong,' said Mr Leung, adding that economic growth on the mainland was expected to continue at its 7 per cent pace while doubts linger on the economic recovery story in the United States.
Pressure on the Chinese yuan to appreciate should also attract overseas investors to China plays.
Norstar plans to sell 200 million shares while Jiwa is offering 150 million shares. Given the strong interest from retail investors, additional shares will need to be clawed back from the institutional tranche to satisfy retail demand.
For Norstar, another 80 million shares will be retrieved from the institutional tranche, while Jiwa will re-allocate 60 million shares to retail investors.
Due to the demand, analysts expect spectacular gains from the counters when they debut because of strong buying from fund managers.
Trading in the Norstar shares will start tomorrow, while Jiwa shares will list on Tuesday.
