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The potent mix of strong global corporate earnings, expectation about further U.S. stimulus and the outcome of the U.S. elections continued to support global benchmarks and the IPOX Indexes. As risk aversion declines, global IPO deal flow increases with strong initial showings of respective deals.

IPOX Indexes Action:

  • The key IPOX-100 Global Index (IPGL100) consolidated its strong gains for previous weeks, losing -0.68% to +5.36%YTD, slightly underperforming benchmarks. 49/100 stocks in IPGL100 fell, with the average (median) equally-weighted constituent declining by -0.10% (+0.13%), better than the market-cap weighted index.

  • Focus in individual picks was on the big decline in Brazilian constituents with exchange operator BM&F Bovespa (BVMF3 BS: -8.65%), the world’s largest meat producer JBS (OTCQX:JBSAY) (JBSS3 BS: -8.52%) or leading payment processor Redecard (OTC:RDCRL) (RDCD3 BS: -6.70%) amongst the biggest decliners. Inflation concerns and austerity measures towards foreign IPO investors being charged a 2% fee ignited weakness. Relentless liquidity-driven buying propelled China-related consumer stocks and IPOX heavyweights casino operator Wynn Macau (OTCPK:WYNMY) (1128 HK: +11.19%) or cosmetic group L’Occitaine (973 HK: +9.59%) to fresh post-IPO highs. This helped the IPOX Global Consumer Discretionary Index to gain a strong +1.59%.

  • Focus in the IPOX Regional Indexes was on the IPOX-30 Asia-Pacific Index (IPTA: -0.40%), which held its strong relative gains, despite renewed weakness in heavyweight Dai-Ichi Life (8750 JT: -6.50%) ahead of the AIA IPO. With big weakness in Brazil as a red flag for markets, we note big declines in the IPOX Latin America 20 Index (IPXULATT), which fell -5.77% to +15.93% YTD.

IPOX-linked Product Feature:

  • With markets continuing the positive momentum, the IPOX-managed Direxion Long/Short Global IPO Fund (DXIIX) displayed powerful returns and gained a further +0.89% to +4.83% since its March 1st, 2010 inception. The fund currently trades at correlation of -0.47 versus the S&P 500 and at a Sharpe Ratio of 0.92.

Initial Action in global IPOs – Positive across the board:

Table 1: Select Global IPOs (priced)
Company
Ticker
Return over IPO
TAL Education Group
XRS US
65.00%
Boer Power Holdings
1685 HK
13.95%
Betfair Group Ltd
BET LN
19.23%
Netspend Holdings
NTSP US
22.64%
Statoil Fuel & Retail
SFR NO
3.85%
Vera Bradley Inc
VRA US
68.13%

  • 32 global IPOs priced last week, with the average (median) non-mainland China IPO (25 firms) closing +14.12% (+12.96%) higher. Initial returns of mainland Chinese IPOs declined, while the larger European deals did well. Most upside remained for Consumer and Technology-linked IPOs. Ahead of the GM IPO, expected strength in U.S. consumer IPOs, such as Vera Bradley (VRA US: +68.13%), underlines the declining risk aversion even in the lagging U.S. IPO market.
Upcoming global IPOs – Strong global IPO deal flow:
Table 2: Select Global IPOs (expected)
Company
Ticker
Day
Lead
HRT Participacoes
HRTP3 BZ
25/10
CITI, CS
Mecox Lane Ltd
MCOX US
25/10
CS, UB
Cebu Air Inc
CEB PM
26/10
CITI, DB
Tower Bersama
TBIG IJ
26/10
INDO, UBS
ExamWorks Group
EXAM US
27/10
BCLY, CS
First Wind Holdings
WIND US
27/10
CS, DB
SeaCube Container
BOX US
27/10
CITI, DB
Global Dairy
1007 HK
28/10
CCB, MQB
Le Gaga Holding
GAGA US
28/10
BAML
Sihuan Pharma
460 HK
28/10
MS, UBS
AIA Group Ltd
1299 HK
29/10
All Majors
Malaysia Marine
MMHE MK
29/10
CS, JPM
  • Expect upside in the “usual suspects”, i.e. Consumer/Tech IPOs in unique sectors benefiting from positive feed-back momentum participation (MCOX US, GAGA US, EXAM US). We see pricing pressure for debt-ladden alternative energy-related IPOs (WIND US) on plenty of stock market-traded global incumbents.

  • We note caution re: the IPO of Brazils HRT (HRTP3 BZ) on last week’s big declines in Brazilian IPOs and the new 2% tax foreign investor IPO participation.

  • Highlight is the Friday HK debut of insurer AIA Group (1299 HK). While pricing strongly with hedge funds pushing, we note negative post-IPO returns to all of this year’s key Asian Insurance IPOs (Korea Life: -5.50% since IPO, Samsung Life: -6.36%, Dai-Ichi Life:-28.71%).

Disclosure: DXIIX and FPX may be long/short respective stocks.

Source: This Week in Global IPOs: Brazilan IPOs Plunge