Deluge of tiny IPOs keeps HK equity market ticking

But the latest influx of small-cap IPOs is not worry-free. "Such an outburst of new floats will lead to considerable dilution," said Paul Chan, Asia (excluding Japan) chief investment officer of Invesco Hong Kong Ltd.

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"So many new stocks could drag overall performance of the market if the return is not there to support them. It would be fine in a high-growth period. But revenue doesn't grow as fast now as it used to, and profits increase at an even slower pace.

"And it would be fine if companies were buying back stocks the way they do in the US and Japan. But that culture is nonexistent in emerging markets such as Hong Kong," Chan said.

"It would also be fine if we were celebrating record highs like India is, but the Hang Seng Index has lingered at around only 22,000 this year.

"Institutional investors are selective," Chan said. "Not all issuances will be successful."

Peter So, co-head of research at CCB International Securities Ltd, said: "As the market atmosphere improves, investors are seeking higher returns. Sectors such as technology, 'green' lifestyles and the pharmaceutical industry are likely to be favored as they are policy-supported. As long as the new companies are on track to deliver returns, they are going to be welcomed in Hong Kong."

Au said: "China is transforming. The private sector will become the growth engine. In the new era, the Hong Kong IPO market is likely to see dominance of mainland SMEs for at least the next two years. It's natural to see new stocks' average market value and capital raised cutting back."

"For the second half, the pipeline is strong," he said, adding that Hong Kong is eyeing more than 50 new offerings before year's end.