Massive first day IPO gains evoke 'bubble' risk in Asian capital markets

Fourace Industries group

16/12/2020 07:39

By Scott Murdoch
    HONG KONG, Dec 16 (Reuters) - Massive gains posted by
companies at their trading debut in regional stock markets in
Asia this year are raising the spectre of a bubble, bankers and
brokers said.
    A record number of companies in Asia are seeing their
valuations double after initial public offerings (IPO) this
year, driven by red-hot demand from retail investors making the
most of unprecedented market liquidity and lower interest rates.
    The huge price pops have taken place across regional stock
markets, including in Hong Kong, China, and India, prompting
concerns that a "bubble" could be emerging. 
    "There is too much money in the world competing for the few
new stocks that there are," said Francis Lun, chief executive of
Hong Kong retail broker GEO Securities. 
    "There is a bubble and it will burst … but it probably won't
be yet."
    Governments and central banks globally have unleashed
unprecedented fiscal and monetary stimulus to support
coronavirus-hit economies this year. But while many economies
are still struggling with fresh lockdowns due to a resurgence in
cases, the stimulus has helped fuel record activity in
international capital markets.
    Valuations rose by 100% in 150 of Asia's IPOs this year, far
outpacing the rest of the world where only 57 new deals achieved
similar gains, according to Dealogic data.
    In Hong Kong, the valuation of 11 firms doubled at their
trading debut in 2020, while in mainland China 131 companies saw
shares rise by at least 100% on listing day. 
    The hefty gains in China have been helped by the rules
governing China's STAR Market and Shenzhen's ChiNext index,
which removed the traditional caps on IPO trading limits for the
first five days that exist on other mainland markets. 
    
    HONG KONG BOOM
    Share prices increased by an average of 28.5% at Hong Kong
listings this year, a sharp rise from an average 6.65% rise in
2019 and 0.28% gain in 2018. It was also far higher than an
average 18.5% rise at listings in New York in 2020, the Dealogic
data showed.
    "The Hong Kong pop reflects the overall demand there is for
deals, the secondary markets broadly and retail euphoria … we've
seen it before and if any of these things go the wrong way it
will have an impact," said an equity capital markets banker at a
Wall Street firm, who was involved in several IPOs in Hong Kong
this year.
    Shares in Chinese detergent maker Blue Moon  6993.HK  jumped
as much as 25% at its Hong Kong debut on Wednesday, the latest
IPO in Asia's financial hub.
    Fourace Industries  1455.HK  shares surged 230% following
its $16 million IPO in September, the biggest rise among Hong
Kong listings this year, while shares in Smoore International
 6969.HK  gained 150% in July after the company raised $1.1
billion at its IPO.  urn:newsml:reuters.com:*:nL4N2EH17P
    Stocks in Chinese toy maker Pop Mart International  9992.HK 
 soared up to 112% in their Hong Kong debut last week.
 urn:newsml:reuters.com:*:nL1N2IR03A
    "I'm worried for retail investors … they buy when they see
hype," said a capital markets banker at a European institution,
involved in a number of deals in Hong Kong this year. 
    Elsewhere in Asia, stocks in Burger King India  BURG.NS ,
which runs the franchise of Restaurant Brands International
Inc's  QSR.TO  U.S. chain Burger King, jumped nearly 88% at its
market debut on Monday, after the company raised about $110
million.  urn:newsml:reuters.com:*:nL4N2IU125

 (Reporting by Scott Murdoch in Hong Kong; Editing by Sumeet
Chatterjee and Ana Nicolaci da Costa)
 ((Scott.Murdoch@thomsonreuters.com;))