Why Investors Are Piling into Hong Kong IPOs

To most, bitcoin is a quick way to make money. Young Chinese still trade the coin in Hong Kong, where Chinese bans on initial coin offerings (ICOs) and cryptos don’t apply.

However, it’s not the only reason ‘mom and pop’ investors are moving their capital to Hong Kong. Hong Kong’s initial public offering (IPO) scene is starting to gain some serious traction.

According to Bloomberg, ‘Mom-and-pop investors haven’t been this crazy for Hong Kong initial public offerings since 2009.’

Retail investors have placed orders for US$163 billion worth of stock. That’s equal to more than three quarters of the territory’s monetary base.

80% gain in the first day

The most popular IPO thus far has been China Literature Ltd [HKG:0772], the e-book division of Tencent Holdings Ltd [HKG:0700].

The stock surged more than 80% on its first day, rising to more than HK$102 per share. As reported by Reuters:

The company’s stunning debut has shown that Hong Kong has raised its game as it strives to compete with the New York and Nasdaq exchanges — the more traditional home for Chinese tech IPOs seeking to attract international investors.

China Literature’s shares doubled to HK$110 in early trade, versus its offering price of HK$55. The shares closed at HK$102.4, gaining 86.2 percent on the day and giving the company a market value of almost $12 billion.

Before China Literature, the biggest first-day pops of the year belonged to Snap Inc (SNAP.N), the U.S. social media platform, and Shanghai-listed Caitong Securities (601108.SS). Each gained 44 percent on debut, according to Thomson Reuters data based on any company raising more than $500 million.

Behind China Literature is Yixin Group Ltd [HKG:2858] and ZhongAn Online and P&C Insurance Co. Ltd [HKG:6060]. Both are online companies; Yixin facilitates automotive purchases, whereas ZhongAn is an insurer.

Hong Kong Retail

Source: Bloomberg

Hong Kong Stock Exchange booming

While it’s excellent news for companies like China Literature, it’s also great for the Hong Kong Stock Exchange (HKSE), which collects fees from listings. Recently, the HKSE has tried to make their offering more attractive to technology companies.

Why?

Because investors love buying tech companies. Even at extremely high premiums. I suspect Hong Kong’s IPO frenzy will keep going so long as the exchange continues to see the listing of large tech companies with huge potential on offer.

Cheers,

Härje Ronngard,

Junior Analyst, Money Morning

PS: Want to find ASX-listed stocks that could potentially run up 100% or more? Check out these three small-cap stocks trading on the ASX today that we believe could do just that in the future.


Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

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