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Summary:
Declining global risk amid smoothing government action in Europe and the U.S., plus a turn-around in the U.S. dollar, caused stocks to rise as (seasonal) asset allocation buying met with big short covering. While U.S. small-caps retained “safe haven” status over U.S. large-caps and IPOX Global continued to lag, larger Asian IPOs disappointed.

IPOX Indexes Highlights:

  • The IPOX Global Indexes lagged for a fourth week in a row on asset allocation buying in the major benchmarks. The IPOX-100 Global (IPGL100) rose +2.17%, underperforming benchmarks MSCI World (MXWD: +3.14%) and S&P 500 (SPX: +2.97%).
  • 73/100 companies in IPGL100 gained, with the average (median) equally-weighted constituent rising just +2.08% (+1.94%), less than the applied market-cap weighted index, indicative of the effect of index fund trading.
  • In IPOX Global Sectors, Materials (+4.46%) and Industrials (+3.89%) gained most as miners and commodity producers surged anew. Amid continued weakness in tobacco stocks, Consumer Staples (+1.03%) lagged.
  • Focus amongst the IPOX Regional Indexes remained on the solid relative performance of the IPOX U.S. (IPXO) and IPOX developed Asia-Pacific (IPTA) universe:
  • Amid the continuing, now seasonally motivated trade favoring the Russell 2000 (RUT) over the S&P 500 (SPX), the IPOX-100 U.S. (ETF Ticker: FPX) displayed again powerful risk-adjusted returns (+2.62% to +15.20 YTD).
  • Despite the negative news for Sands China (1928 HK: +2.02%) related to casino development, the Macau -domiciled casino operators surged anew, helping the IPOX-30 Asia-Pacific (IPTA) to extend its YTD gain by +2.56% to +27.47%, trouncing the benchmarks.

IPOX-linked product performance: Sources of uncorrelated Returns

Performance of IPOX-linked products

Ticker
YTD (%)
Beta
Corr vs. S&P
Corr vs. DXIIX
DXIIX
+8.87
0.22
-0.42
1.00
FPX
+15.88
0.99
0.87
0.87
  • For long-only investors, the IPOX-linked First Trust U.S. IPO Fund (ETF FPX: +2.62% to +15.88% YTD) has been effective in capturing a return profile similar to the Russell 2000 (RUT) and Nasdaq 100 (NDX) with exposure (Sector breakdown) and risk (Beta) similar to the S&P 500 (SPX).
  • For (alternative) Long/Short investors, the IPOX-managed Direxion Long/Short Global IPO Fund (DXIIX: +1.81% to +8.87% YTD) has been effective in providing competitive returns at a negative correlation to long-only benchmarks and incumbent Long/Short funds.

Initial Action in global IPOs:
Select Global IPOs (priced): Larger Deals fall

Company
Ticker
Return over IPO
Aluminium Bahrain
ALBH LI
-1.84%
Amtek Engineering
AMTK SP
-21.54%
FXCM Inc
(FXCM) US
+7.14%
Da Ming International
1090 HK
4.29%
Shifang Holding Ltd
1831 HK
-11.22%
  • 21 global IPOs priced last week, with the average (median) non-China A share IPO (17 IPOs) gaining +15.62% (+2.99%). While selected small-caps substantially skewed the results upwards, we highlight a) continued weakness in IPOs in H.K. and in particular in Singapore and b) further strength in non-China domiciled IPOs “going public” in the U.S.

Upcoming global IPOs – Biggest week ever for Chinese IPOs:

Select Global IPOs (expected):

Company
Ticker
Day
Lead
Targa Resources
TRGP US
06/12/
BAML, BCLY
E-Commerce China
(DANG) US
07/12/
CS, MS
Youku.com Inc
(YOKU) US
07/12/
GS
Bona Film Group Ltd
(BONA) US
08/12/
BAML, JPM
Sateri Holdings Ltd
1768 HK
08/12/
BOCINT, CS
SemiLEDs
(LEDS) US
08/12/
BAML, BCLY,
Greatview Aseptic
468 HK
09/12/
GS, MS
Sky-mobi Ltd-ADR
(MOBI) US
09/12/
C
Bumi Resources
BRMS IJ
09/12/
DANA
First Republic Bank
FRC US
09/12/
BAML, JPM
Axiom Ltd/UAE
AXIOM DU
09/12/
DB
Pola Orbis Holdings
4927 JP
10/12/
NOMURA
China ZhengTong
1728 HK
10/12/
CCB, JPM
Gjensidige Fors.
GJF NO
10/12/
GS, BAML
  • As the year draws to a close, a fascinating/powerful mix of IPOs is in the global IPO pipeline: Our non-U.S. focus is on the debut of Pola Orbis Holdings (4927 JP), the large-cap Japanese cosmetics maker. Amid the successful listing of L’Occitaine (973 HK), we expect a strong institutional and retail following. While realizing the mediocre performance in this year’s global insurance IPOs, we note the IPO of Gjensidige Forsikring, Norways largest in 10 years. With the H.K. stock market in a tight range and domestic China unable to recover the substantial YTD losses, we underweight H.K. IPOs.
  • In the U.S., expect the busiest week for Chinese IPOs ever. While the average deal should perform well, last week’s sharp decline in recent IPOs such as Mecox Lane (MCOX: -38.97%) highlights the big risk underpinning the median Chinese IPO listed in the U.S. U.S. domiciled deals (FRC US, TRGP US) provide solid median- to long-term diversification opportunities.

Disclosure: I am Long FPX. The IPOX Indexes, the First Trust U.S. IPO Fund (FPX) and the Direxion Long/Short Global IPO Fund (DXIIX) may be long or short companies aforementioned.

Source: This Week in Global IPOs: Amid Rising Risk, Chinese IPOs Flock to Market