Financial analysts voice warnings of possible market fluctuations

Hong Kong's initial public offering (IPO) market kicked off to a better start in 2013 as most of the newly-listed shares closed up higher than their subscription prices, but financial analysts cautioned that the IPO market rests entirely on market liquidity but not corporate fundamental factors that may lead to market fluctuations.

Electrical appliance maker Quali closed at HK$1.66 per share on Wednesday, representing an approximately 11 percent jump than its subscription price. Property developer GW Tiandi and textile manufacturer Speedy Global all closed 21 percent and 39 percent higher than their offering prices respectively in their last week debuts.

Looking ahead, aluminum products makers PanAsialum Holdings Company and Chinalco-CMC also elicited positive response in the local IPO market as their newly-issued shares had received HK$200 million and HK$3 billion margin subscription respectively.

"The recent optimistic sentiment in the city's IPO market is due to abundant market liquidity and the new shares are (being) priced at the lower market range attracting investors," Lippo Securities Associate Director Kitty Chan said.

However, other financial analysts are more cautious and prefer to take to the sidelines toward the local IPO market.

"Share prices of GW Tiandi and Speedy Global have already retreated significantly on Wednesday although their latest closing prices (are) still hovering above their offering prices. These new shares are quite overvalued after a series of price hikes immediately after (the) IPO," Kingston Securities Research Director Dickie Wong told China Daily. "It is quite risky for investors buying those IPO shares now as their valuations are already not cheap."

GW Tiandi share price tumbled 7.3 percent to HK$1.77 a share on Wednesday, which is still higher compared to its offer price of HK$1.68 per share. Speedy Global share price also plunged 6 percent to HK$0.94 per share on Wednesday compared to its offer price of HK$0.82 per share.

"The local IPO market is completely driven by market liquidity which cannot be analyzed based on the economic and corporate fundamental factors," Tengard Fund Management Investment Manager Patrick Shum told China Daily.

"Investors should also be alert to the net profit performance of those newly-listed companies as these companies are more prone to announce worse-than-expected profit performance not long after their listings," Shum warned.

Global accounting firm Deloitte in its previous IPO market report estimated that around 70 to 80 companies will be listed in 2013 to raise approximately HK$100 to HK$150 billion. Financial services, property, and retail and consumer sectors will be the focus of this year's IPO market.

Another accounting services agent KPMG reckoned that there will be 85 IPO deals in 2013 to raise HK$125 billion. KPMG sees IPO fund growth rising in Hong Kong based on the revival of the mainland economy.

The city's IPO market recorded a lackluster year in 2012 as the market only elicited 64 IPO deals that raised HK$90.4 billion, dragging the city to become the world's fourth most popular IPO destination. The city had been the world's most popular number one IPO market for the last three consecutive years from 2009 to 2011.

oswald@chinadailyhk.com

(HK Edition 01/24/2013 page2)