Hong Kong's stock exchange set a new record in terms of fundraising in the first half, but the performance of new listings has nevertheless been dire as the shares of almost two-thirds of the companies that have gone public in the city this year are now trading below their IPO prices.

According to data calculated by China Daily, as of July 18, a total of 24 or 64.9 percent of the 37 IPOs issued this year were trading below their offer price.

The world's biggest initial public offering so far this year - Glencore International Plc's dual listing in London and Hong Kong fell as much as 3 percent on its Hong Kong debut in May and closed at HK$61.80 per share in Hong Kong on July 18 - a loss of 7.11 percent versus its offer price of HK$66.53.

Samsonite International which tapped up HK$1.25 billion from its IPO in the city, dropped 7.7 percent on its trading debut in June. It compares with Li Ka-shing's Hui Xian Real Estate Investment Trust - the city's first stock sale denominated in yuan, which closed down 9.4 percent from its offer price during its April trading debut. It closed at 4.65 yuan on July 18 - still 11.26 percent away from its IPO price of 5.24 yuan.

Meanwhile, Prada SpA was priced near the low end of its target range for its $2.1 billion IPO in June. Though the Italian fashion house rose a tepid 1.3 percent in its Hong Kong debut on June 24, it was only the second company in 2011 to post first-day gains among the billion dollar-plus IPOs in Hong Kong after MGM China, which rose a similar 1.8 percent on its June 3 debut.

These figures are also in line with the city's benchmark Hang Seng Index, which during the first six months of 2011 has declined a total of nearly 640 points or 2.77 percent. And as of July 18, the loss this year has even expanded to 1,230 points or 5.34 percent.

The disappointing performance of new listings has caused a number of mainland companies to postpone their IPOs in Hong Kong this year, including China Everbright Bank Company, which has decided to wait to hold its share sale by the end of summer instead, reports in late June said.

The performance of new stocks have also shown a disparity in terms of performance depending on the quarter. Of the 14 IPOs that debuted in the first quarter in Hong Kong in 2011, only one of them - Far East Horizon Ltd, was trading above its offer price as of July. Meanwhile, of the 19 IPOs listed in the second quarter, nine of them are now posting gains.

"In the first quarter, a misdiagnosis on the global economy may have led to aggressive IPO pricing, which has resulted in a spate of stocks falling from their offer prices," Linus Yip, a strategist at First Shanghai Securities, told China Daily.

Shaky sentiment about the global economy has resulted in the lackluster performance of the new IPOs on the Hong Kong stock exchange, said Jimmie Cheng, a partner at "Big Four" accounting firm Ernst & Young.

He attributes the gloomy stock market to a series of external factors, including Japan's earthquake, political unrest in the Middle East, as well as the European debt crisis.

"We can't really blame exchanges as ups and downs in the stock market is a very cyclical adjustment," Yip said, adding that the economic and social turbulence over the globe in the second quarter were also immediately reflected in the prices of the new listings.

Similar to Hong Kong, IPOs on the mainland stock exchanges have also suffered this year.Only 63 out of 177 new stocks posted gains on their trading debuts, mainland-based newspaper National Business Daily reported last week, which added that 60 percent of listings on the Shanghai and Shenzhen stock exchanges were trading below their offer prices. In fact more than 10 stocks had even shed more than 30 percent of their initial value as of the end of June.

A two-pronged recovery will continue this year with growth remaining subdued for advanced economies while activity remains buoyant in emerging economies, according to the World Economic Outlook forecast published by the International Monetary Fund in January. The report added that the most urgent requirements for a robust recovery are comprehensive and rapid actions to overcome sovereign and financial troubles in the euro area and policies to redress fiscal imbalances as well as repair and reform financial systems in the advanced economies more generally.

However, backed by strong economic growth on the mainland - which posted 9.5 percent gross domestic product growth year-on-year in the second quarter - Hong Kong is still one of the most favorable IPO destinations for mainland companies to raise funds.

The city has been the world's biggest IPO market for the past two years. In 2010, it saw a 79 percent increase in fundraising and a 55 percent rise in new listings, compared with the previous year, where 82 mainland companies listed on the bourse raising a total of $29.92 billion.

In 2011, despite the lackluster performance of new stocks and the lack of giant IPOs such as the Agricultural Bank of China and AIA Group Ltd last year, Hong Kong still posted the best fund-raising interim record in the past decade, another "Big Four" accounting firm Deloitte said in late June.

Paul Go, managing partner of industries and priority accounts with Ernst & Young expects that IPO activities in Hong Kong in the second half will overtake the first six months as the Hong Kong stock exchange is currently processing quite a number of new applications.

"Although more foreign listings are expected in Hong Kong, mainland companies will nevertheless become the major force, particularly those in the retail and consumer sectors, and financial services as well as energy and resources," Go said at a recent media briefing in Beijing.

Both Ernst & Young and Deloitte, however, expect fundraising on the city's bourse this year to decrease 11 percent to HK$400 billion this year from HK$449 billion in 2010, citing reasons such as policy risks in taming inflation and economic uncertainties outside Asia.

The share price moves as market sentiment and economic conditions change, a HKEx spokesman wrote to China Daily in an email reply, who believes that the Hong Kong securities market remains an attractive listing venue because of its attractive valuation, strong liquidity and balanced investor base. It added that all these will appeal to investors and liquidity will continue to attract potential issuers.

"Given current unfavorable market conditions, some companies might choose to postpone their listings," said First Shanghai's Yip. "But the trend of an Asian fever will not change since the US and the European Union shows limited economic recovery and Asian stock markets, particularly Hong Kong, are still the main destinations for fundraising."

litao@chinadailyhk.com

China Daily

(HK Edition 07/21/2011 page2)