Swooning China Stocks Cripple Hong Kong IPOs

Gene Linn |

hong kong china stocksAs China stocks continue to swoon, one casualty has been Hong Kong’s once hot IPO market.

Just three weeks ago fashion and accessories play Milan Station (1150:HK) was 2,100 times oversubscribed. Previous IPOs this year generally faired well.

But that was in a week the blue-chip Hong Kong index closed 5.1% higher than it did Thursday. And it was before the U.S. recovery began to stagger, the Greece debt crisis deepened and China announced higher inflation and tightened bank lending again.

Just yesterday blue chips crashed below the 22,000 support level due to worries over Greek debt. Even after Wall Street staged a big rally earlier in the week, Hong Kong stocks dropped. “This is a market on the defensive,” Howard Gorges, vice chairman of South China Brokerage, told Equities. The many problems confronting stocks have crushed market sentiment, which undermines IPOs.

Soon after the Milan Station listing, Australian commodities heavyweight Glencore pulled its IPO. U.S. luggage maker Samsonite started trading Thursday about 7% below its offer price. China’s Everbright Bank, the largest planned IPOs in Hong Kong this year, has scaled back its target of U.S.$7.5 billion to $6.0 billion, according to Gorges. The much-anticipated Prada listing on June 24 must deal with faltering market sentiment.

Hong Kong attracted impressive IPOs like Prada this year partly because of its money-raising prowess, Gorges said. Firms with a growing business in China, like Prada and Samsonite, also banked on a considerable rush of good publicity. Now it looks like they have to settle for the publicity.  End

DAILY FIX

Hong Kong Blue Chips: -391, -1.8%, to 21,953, 06-16-11, Hang Seng Index

Chinese Stocks in Hong Kong: -236 -1.9% to 12,161, 06-16-11, HSCE Index

Shanghai Stocks: -1.5%, 2,664,  06-16-11, Shanghai Composite Index.

Chinese Stocks in the U.S.: -8.8 to 414.4, 06-15-11, Bank of New York Mellon, ADR Index-China

Insight: The deepening Greek debt crisis helped drive Hong Kong blue chips below the 22,000 support level in higher turnover. The debt problem and weakening U.S. manufacturing data hurt port and export players. Exporter Li & Fung (494) fell 2.8%. KGI Research

Quotable: "...the short-selling ratio retreated below 10%, implying investors believed that the downside of the market will not persist which helps to relieve the selling pressure. We believe that HK market will continue to be volatile for the rest of this week with trading range of 22,100 to 22,800." Core Pacific Yamaichi. 6-17-2011

Chinese Company to Watch: Tianjin Development (0852) "While there remains solid earnings contribution from the company’s other operations, which include its listed offshoots Tianjin Port Development (3382:HK) and Dynasty Fine Wines (0828:HK), as well as its unlisted elevator joint venture, TD’s lack of business focus should be one of the major reasons r its mediocre earnings track record." Haitong Securities. 6-17-2011

Brokerages and analysts cited have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don't endorse them.

For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
FMS Fresenius Medical Care AG 43.77 0.78 1.81 118,324

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