Mainland brokerage Guotai Junan closes flat in Hong Kong debut

China’s third-largest brokerage by assets, Guotai Junan Securities, closed flat on its trading debut on Tuesday after raising HK$16.5 billion (US$2.12 billion) from its initial public offering, the biggest in Hong Kong this year.

The company’s shares closed unchanged at HK$15.84, having climbed 0.6 per cent to HK$15.94 at one point during the mid-morning session.

The halfhearted performance of Guotai Junan was down to a lack of interest currently in Chinese brokerages, said Hanna Li Wai-han, a strategist at UOB Kay Hian.

“The performance of Chinese brokerages is not as good as last year due to the lacklustre mainland stock markets and tepid securities margin trading in the country,” said Li. “Plus, the fundamentals of Guotai Junan are not outstanding and its valuation is not cheap among its peers.”

Guotai Junan is also the third-biggest brokerage by sales in China, after Citic Securities and Haitong.

Its flotation is the largest in Hong Kong and the second biggest globally of 2017 so far this year, behind the US$3.9 billion IPO of messaging app group Snap Inc in the US.

The company had set a fixed price of HK$15.84 per share last month. The final pricing of most IPO deals are determined by actual demand, with prospectus documents providing indicative ranges for the eventual pricing of the shares. The offer price of HK$15.84 represented a discount of 25 per cent compared with the closing price of its shares in Shanghai before the deal was launched.

Linus Yip, chief strategist for First Shanghai Securities, believes Guotai Junan’s IPO “came at

at a challenging time for the brokerage industry”. He said investors remain wary of Chinese brokerages as the industry is still recovering from the trauma of the stock market crash of summer 2015.

Guotai Junan, a securities corporation dual-listed in Shanghai, said 5 per cent of the shares were for public offering in Hong Kong, while the rest were in the international placement tranche, largely targeting institutional investors. The retail tranche of Guotai Junan’s IPO was oversubscribed by 2.61 times.

“I do not think the lukewarm performance on its debut day in Hong Kong is a phenomenon limited to Guotai Junan,” said Andrew Lam, director at accounting and advisory firm BDO. “There are less and less subscriptions by retail investors who would like to buy stocks after trading, and that could be one of the reasons for the weak debut performance.”

However, analysts see opportunities for Guotai Junan to outperform if Chinese mainland shares successfully become part of the MSCI Emerging Markets Index in June, when a decision is due.

“Chinese mainland brokerages could benefit from the inclusion of A shares in the MSCI global indices this year,” said Li.

Lam said Chinese brokerages could benefit from future links between China and overseas markets, such as stock connect schemes between Shanghai and London or New York.

The shares of Guotai Junan in Shanghai added 0.2 per cent to close at 18.5 yuan on Tuesday.