Last Thursday's slump and tightening of margin trading in the mainland stock market have more or less soured investor sentiment in the trading debut of Huatai Securities Co Ltd in Hong Kong. However, experts believe the broker's shares still enjoy potential ahead of the expected launch of the Shenzhen-Hong Kong Stock Connect later this year. Photo / IC

Surge of only 4.8 percent in broker's shares seen as apprehension over steep mainland correction after rally

Shares of Huatai Securities Co Ltd - the mainland's biggest brokerage by trading volume - surged 4.8 percent in its trading debut in Hong Kong on Monday after the company raised HK$34.7 billion in the world's second-largest initial public offering (IPO) so far this year.

However, the closing price of HK$26 on the first day of trading on the Hong Kong Stock Exchange failed to meet market expectations of an increase of at least 20 percent.

Shares of the other Chinese mainland stockbroker, GF Securities Co Ltd, which gained a listing on the Hong Kong bourse earlier, were traded on their first day at a 35-percent premium to the offer price.

The difference between the two brokerages' first-day performances may reflect concern that the mainland's stock-market boom could be facing a steep correction after having gained more than 100 percent in the latest rally.

A 6.5-percent plunge in the Shanghai index last Thursday has served as a reminder of the possible scale of a major market correction, stock analysts said.

CITIC Securities Co Ltd lost 0.76 percent to close at HK$32.7 on Monday, while GF Securities slumped 3.04 percent to HK$25.5.

Concerns over the sharp price swings of mainland shares has undermined local investor confidence in Huatai, said Hanna Li Wai-han, a strategist at UOB Kay Hian (Hong Kong) Ltd.

Huatai Chairman Wu Wanshan, however, said in Hong Kong he was "satisfied" with his company's market performance.

Huatai raised $4.5 billion at the top range of its offer prices between HK$20.68 and HK$24.8 amid growing investor interest in stocks benefiting from the mainland's market rally this year.

"Huatai underperformed in its Hong Kong debut as investment sentiment in mainland stock market was dampened by last Thursday's sharp slump," Li said.

Daniel So Pui-fung, China Merchants Bank International Securities Ltd strategist, said persistent talk about the tightening of margin trading requirements on the mainland has hit Huatai's performance.

He said the company's IPO is looking to be too aggressively priced, adding that the 20-percent discount to the company's A shares pales in comparison to the GF Securities' 40-percent discount.

Analysts warned retail investors against expecting to make much money from trading Huatai shares in Hong Kong, at least in the short term.

So predicted that the broker's shares would fluctuate within a narrow band of between HK$25 and HK$30 in the coming two months.

Li predicted that a 20-percent increase for Huatai shares is possible in the next two months as investment sentiment in mainland securities may return early next month in anticipation of the launch of the Shenzhen-Hong Kong Stock Connect - the second cross-trading link between the mainland and the SAR.

The Hang Seng Index gained 0.6 percent at the close of trading on Monday.

celia@chinadailyhk.com

(HK Edition 06/02/2015 page11)