Hong Kong’s first-quarter IPOs generate biggest returns in four years as bull market builds up
- Two big reasons behind surge: Fewer IPOs and overall strength of market
- CStone Pharmaceuticals led returns with 31 per cent in first month
Hong Kong’s initial public offering market has been delivering the best returns in years.
Eleven companies that sold IPOs worth at least U$S100 million rose by an average of 11 per cent one month after first-day trading, the biggest such gains for any first quarter in four years, according to data compiled by Bloomberg. The last time IPO shares sold on Asia’s third-largest stock market did as well in a first quarter was back in 2015.
Investors’ demand for new shares has been improving, as the city’s equity benchmark Hang Seng Index entered bull-market territory last week, following the heels of the key gauges tracking the mainland-traded stocks. The softened tone by the US Federal Reserve on raising interest rates and expectations about accelerating earnings growth for Chinese companies, which make up a bulk of the weights on the Hang Seng Index, have helped to raise the appetite for risk assets. The Hang Seng gauge rose 12 per cent in the first quarter, the best start to the year since 1993.
“The improved performances of Hong Kong’s IPO shares are mostly due to the good momentum on the stock market and investors are inclined to give new shares higher valuations when sentiment on the secondary market is good,” said Ken Chen Hao, a strategist at KGI Securities in Shanghai. “And also, there were fewer IPOs in the first quarter this year, so scarcity also makes things good.”
Companies raised combined US$2.8 billion from selling IPO shares on the Hong Kong stock market in the first three months, down 12 per cent from a year earlier, according to data from Refinitiv. The city risks losing the title of the world’s biggest IPO market this year, with more companies including ride-hailing Lyft opting to choose list on the Nasdaq in the first quarter.
CStone Pharmaceuticals, a Chinese biotechnology company that raised US$327.8 million for the city’s biggest IPO in the first quarter, has delivered the best returns, rising 31 per cent a month after trading. It was followed by a 27 per cent gain for China Kepei Education Group and 14 per cent for online ticket-selling platform Maoyan Entertainment.
The worst-performing IPO was Chengdu Expressway, whose shares fell 5.5 per cent one month after they began trading in the city.
In the mainland, the 10 companies that raised at least US$100 million from IPOs in the first quarter have returned an average 109 per cent a month after debut, Bloomberg data showed. The outsize gains were mostly a result of regulatory intervention, as the stock-market regulator requires almost all companies to sell new shares for no more than 23 times earnings to make sure each deal is successful.
