Mom and Pop pile into Hong Kong IPOs in US$163b bonanza this year

[HONG KONG] - Mom-and-pop investors haven't been this crazy for Hong Kong initial public offerings since 2009.

Hong Kong retail stock buyers placed orders for US$163 billion worth of equity in this year's major deals, according to data compiled by Bloomberg. That's equal to more than three quarters of the territory's monetary base. The most popular was China Literature Ltd, a local take on Amazon.com's Kindle Store that's risen 71 per cent since it started trading this month.

Small investors in the city are jumping at the chance to buy into higher-growth industries like tech, after years of being offered stock in a string of sleepy state enterprises and commercial lenders from the Chinese hinterland. The most popular offerings this year had well-known backers like Hong Kong's richest man, Li Ka-shing, and Chinese Internet giant Tencent Holdings Ltd.

"The celebrity effect is driving the market interest," Steven Leung, executive director at UOB Kay Hian (Hong Kong) Ltd., said by phone. "Retail investors buy when the sentiment is good but potentially don't understand a lot about the fundamentals."

Among Hong Kong first-time share sales this year that raised more than US$500 million, four deals saw retail investors apply for at least 100 times the amount of stock initially offered to them. The last time Hong Kong hosted so many hot deals was in 2009, when five major transactions attracted that level of retail interest ranging from cement maker BBMG Corp. to drug distributor Sinopharm Group Co, data compiled by Bloomberg show.

Every IPO on Hong Kong's main board must set aside stock for small investors, giving them early access to deals that they're not afforded in most other major markets like the US. Hong Kong listing candidates usually reserve 10 per cent of their IPO shares for such investors, who can get margin loans to cover the bulk of their subscription cost. The tranche can be increased to as much as half the offering when there's heavy interest.

All that enthusiasm is spilling over into after-market performance. China Literature's 86 pe cent first-day gain was the best of all major tech listings globally this year. That beat the 44 per cent rise in Snap Inc, the developer of Snapchat, on its March debut. Shares of FIT Hon Teng Ltd, a unit of Apple's biggest supplier, have more than doubled since they began trading in Hong Kong in July.

"You're starting to get companies that represent the new phase of growth in China," Brian Gu, chairman of Asia Pacific investment banking at JPMorgan Chase & Co, said in a Nov 17 Bloomberg Television interview. "There is a certain sense of enthusiasm in the market that contributes to the post-IPO performance in a lot of stocks."

Hong Kong could use some successes: first-time share sales in the city have seriously underperformed other parts of the world, even including this year's technology blockbusters. Hong Kong new listings over the past five years have risen an average 7.6 per cent from their offer prices to date, compared with an average 43 per cent gain globally, Bloomberg-compiled data show.

The improved sentiment could provide a boost to next year's listing hopefuls including Tencent's online music platform, which is preparing to seek at least US$1 billion selling shares in Hong Kong.

2018 will be a "very strong year" for IPOs in the city, according to JPMorgan's Gu.  More financial technology, consumer and health-care companies will come to market next year, said Mille Cheng, co-head of Asia Pacific equity capital markets at Morgan Stanley.

Peer-to-peer lender Dianrong.com flagged in April it's considering Hong Kong as a possible listing destination. It would join US film studio STX Entertainment, which is targeting to raise about US$500 million in the city as soon as the first quarter of 2018, according to people with knowledge of the matter.

"Investors will continue to focus on growth, with tech and health care likely the darlings again," Morgan Stanley's Cheng said.

BLOOMBERG