Shum Yip Investment, the commercial arm of the Shenzhen municipal government, appears set for a strong debut tomorrow on the back of fierce investor appetite for red chips. Brokers said its shares had strengthened in the grey market this week and were trading yesterday at about $3.20, a 72 per cent premium to their $1.85 issue price. Frederick Tsang, head of research at BNP PrimeEast, said: 'The IPO [initial public offering] market is really quite hot at the moment. 'There is a lot of liquidity in the system', which was pouring into new issues. The offer was 438 times subscribed and sponsor Peregrine Capital has said it would exercise the over-allotment option in full. This would increase the issue by 37.5 million shares to 287.5 million. The over-allotment shares would be issued during a 30-day window period from tomorrow. Forty per cent of the issue would go to the public, while the balance would be placed with institutions. Mr Tsang said Shum Yip had struck a chord as the company was better known among Hong Kong investors than other red chips. The relatively modest size of the listing had further boosted the grey market price, he said. Brokers said they expected the counter to shake off profit-taking pressures, with some investors holding on to the stock in anticipation of asset injections from parent Shum Yip Holdings. 'Some investors are expected to take a slightly longer-term view to see what develops,' one said. Shum Yip is expected to raise $531.8 million from the exercise. Proceeds are marked for investment in inter-city bus services, property development, car rental businesses and working capital. One broker offered a succinct prediction of Shum Yip's direction after tomorrow's opening bell: 'Up, obviously.'