Two companies making their debut on the Hong Kong stock exchange yesterday suffered a drubbing in their first trading session as a credit squeeze and fears of an economic slowdown on the mainland soured the mood of investors who consequently went on a hunt for safe-haven stocks to hedge their exposure.
Shares of Sunshine 100 China, a Beijing-based developer partly owned by a US private equity firm, dropped 24 per cent to the day's low of HK$3.05 before ending 6.5 per cent down at HK$3.74.
Bankers said Sunshine 100 even offered a steep discount of nearly 70 per cent to its expected net asset value for this year.
Haichang, the first theme park listing in Asia, fared even worse on its debut, dropping 17.5 per cent to close at the session low of HK$2.02, with the day's top of HK$2.27 far below the offer price of HK$2.45.
The poor performance of the two newcomers could affect the plans of other companies to list their shares in what is now a tepid flotation market.
"The sharp change in market conditions may halt some listing plans by cash-strapped mainland property firms," said a senior banker. "China's credit squeeze has a detrimental effect on developers' listing in Hong Kong since investors have been wary of the sector since last year."
Investors have turned their focus on accumulating gold and safe-haven stocks such as telecommunications and utilities firms to hedge against rising macroeconomic uncertainties after a notable moderation in the mainland's monetary condition and export growth.
Excluding the two companies, the city's new listings generated an average one-day return of 53 per cent this year, much higher than last year's 33 per cent, according to Dealogic.
Ben Kwong Man-bun, the chief operating officer of broker KGI Asia, said the appetite for new listings had cooled significantly, pointing out that oversubscription levels had come off even though some companies offered a unique, compelling investment story.
The lukewarm market sentiment has prompted luxury car dealer Sunfonda and Hanhua Financial, a mainland small credit lender, to delay their offerings given volatile market conditions.
Despite the tough conditions, Harbin Bank, which is looking for a US$1 billion offering in Hong Kong, began its pre-marketing campaign yesterday after receiving approval from the stock exchange.
Bankers said Harbin Bank would be a tough sell since the issuer requested a hard underwriting agreement, meaning parties must buy unsold shares.