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Hong Kong’s mom-and-pop buyers squeeze funds as IPOs sizzle

HONG KONG As Hong Kong’s inventory market prepares for billions of {dollars} in gross sales of recent shares, international fund managers have a giant problem – competing with town’s military of mom-and-pop buyers for a slice of the pie.

Record participation by retail buyers in a latest Hong Kong preliminary public providing and sky-high demand in another IPOs has compelled large buyers to carry onto newly listed shares.

Under IPO guidelines in Hong Kong – which competes fiercely with New York and London to draw international listings – a deluge of orders from retail buyers reduces the portion that fund managers can purchase.

This latest competitors from particular person buyers has compelled a rising variety of funds to develop into “cornerstone” buyers: they get precedence earlier than a deal launches however most maintain the shares for at the least six months.

Chinese biotech firm Ocumension Therapeutics set a report this month for an IPO over HK$500 million ($65 million) when the retail portion was almost 1,900 occasions oversubscribed, in keeping with inventory change information.

Retail buyers have been initially to be allotted 10% of the $184 million providing, however Hong Kong’s “clawback” rule, which kicks in when the retail portion of an IPO is closely oversubscribed, bumped that as much as 50%.

“Strong retail demand is the key reason we see more and more institutional investors willing to consider becoming a cornerstone investor,” mentioned Morgan Stanley managing director Cathy Zhang, who labored on the Ocumension deal.

Ocumension shares popped to $HK37 in early buying and selling from an preliminary $HK14.66. It closed on Friday at $HK29.45.

Hong Kong has among the many highest retail buying and selling ranges on this planet, and an OECD examine final 12 months estimated that particular person buyers owned 30% of the market – far above 11% within the United States and 16% in Britain.

Bankers say whereas Asian IPOs have seen robust retail curiosity, the degrees don’t eclipse Hong Kong – in Seoul, SK Biopharmaceuticals’ $791 million share sale in June noticed 323 occasions retail oversubscription price, in keeping with native media.

In Europe, bankers noticed an uptick in particular person curiosity in IPOs not too long ago, however many of the retail exercise has been in secondary buying and selling and thru exchange-traded funds and index trackers.

Hong Kong’s excessive retail demand dangers over-valuing corporations, equivalent to biotech startups, after they come to market, bankers say.

“It is a consensus among institutional investors that valuation for the majority of the biotech companies listing in Hong Kong are stretched,” in keeping with Aequitas Research co-founder Ke Yan, who publishes on the SmartKarma platform.

Strong latest itemizing performances by biotech corporations can be serving to to lure Hong Kong retail shareholders.

Ocumension rose 154% on its first day and Peijia Medical, which was 1,184 occasions oversubscribed, gained 68% on its market debut, Refinitiv information present.

Hong Kong Institute of Investors chairman Ricky Tam mentioned town’s retail buyers are being enticed by jumps in inventory costs on the primary day of buying and selling.

“A lot of investors don’t know the details of the companies, they only want to know if an IPO is going to perform well or not,” he mentioned.

Massive retail demand for Hong Kong IPOs has been pushed by “very, very low” rates of interest and will proceed, mentioned brokerage UOB Kay Hian government director Steven Leung.

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“Whenever there is a hot deal with a good story, lots of investors, retails, institutions, hedge funds rush to participate,” Leung mentioned.

Disclaimer: This publish has been auto-published from an company feed with none modifications to the textual content and has not been reviewed by an editor

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