HONG KONG: The current initial public offering (IPO) frenzy in the city will likely continue in the second half as investors' appetite for newly-listed shares remains strong, analysts said.

In a sign of growing appetite for new shares, overseas hot money has flowed into the city again recently after a temporary halt last month, analysts note.

The Hong Kong Monetary Authority (HKMA), the city's de facto central bank, injected another HK$1.16 billion into the market in New York trading Tuesday as foreign capital inflows resumed.

"The fresh capital inflows are obviously targeting the IPO market as they did not enter the secondary market," said Linus Yip, a strategist with First Shanghai Securities Ltd.

The daily turnover of the local bourse declined to around HK$60 billion in recent trading sessions from around HK$80 billion previously, indicating that the fresh money did not enter the secondary market, he explained.

Investors' thirst for new shares will continue to be supported by several underlying factors.

These include the attractive pricing of new shares, the relatively high valuation of existing shares, as well as a general mentality among investors to make a quick profit by raffling for new shares due to uncertainty on the market outlook, market watchers say.

To attract enough subscription for their new shares, listing candidates generally price their shares at attractive levels compared with previously-listed peers.

For example, mainland-based sportswear maker 361 Degrees International priced its IPO at 8.7 times estimated profit for the current financial year, much lower than that of its rival Anta Sports Products Ltd, which listed its shares in 2007.

Shares of Anta Sports currently trade at around 16 times its estimated profit for the year.

"The practice of pricing new shares at attractive levels will likely continue as bosses still dare not ask for too high a price for their new shares now," said First Shanghai Securities' Yip.

Meanwhile, the relatively-high valuation of existing shares in the secondary market also encourages investors to flock to the IPO market.

"Share prices in the secondary market have risen to relatively high levels," said Matthew Kwok, research head at Tanrich Securities Ltd.

Share prices have rebounded more than 60 percent during the last three months, with the benchmark Hang Seng Index (HSI) trading now at around 16 times its estimated profit for the year.

The current valuation of the market is still lower than the 21 times during the market boom in 2007. But it has nearly doubled from its trough of 9 times late last year after the global financial crisis began.

Investors are also fond of raffling for IPO shares now as the market outlook remains blurred after the HSI failed to break through resistance at the 19,000-level, analysts said.

Meanwhile, the strong performances of recent IPO debutantes has strengthened investors' confidence in new shares, analysts said.

Most of the recent debutantes gained more than 20 percent with some even jumping over 30 percent in their first day of trading.

"The IPO frenzy will likely continue through the second half. But it may not heat up to the red-hot state seen during the market boom in 2007," said Thomas Ng, investment strategist at Quam Securities Co Ltd.

However, market watchers caution investors against being too euphoric.

The possibility of an abrupt reversal in the IPO market could not be ruled out in case the broad market suffers a steep fall for any reason.

"A sharp correction in the broad market could damage general sentiment, hurting the IPO market as well," said Ng.

As many as 100 firms may be reviving their Hong Kong IPO plans this year after last year's market slump delayed their share sales plans, according to Goldman Sachs's estimate.

Meanwhile, accounting firm Ernst & Young predicted IPOs in Hong Kong may reap HK$145 billion this year.

(HK Edition 07/10/2009 page3)