This Week in Global IPOs: Hong Kong IPO Deal Flow Deteriorates Anew

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Includes: FPX, GM, YOKU
by: Josef Schuster

Summary:
Option and Futures expiration had the major equity benchmarks tied trading in a tight range last week. Ahead of the holidays, global IPO activity continued at a brisk pace, with H.K. deal flow continuing to display big weakness. Select IPOX Indexes diverged anew, underlining potential consolidation risk in the main global benchmarks.

IPOX Global Indexes Action:

  • The IPOX Global Index finished Option and Futures expiration week relatively lower, with asset allocation driven index buying supporting the main benchmarks. The IPOX Global 100 Index (IPGL100), the global IPO and spin-off barometer, fell -1.47% to +2.54%, continuing the lackluster performance into year-end.
  • In IPOX Global Sectors, IPOX Global Utilities was the best performing sector for a second week in a row on big buying in dividend heavy-European utilities such as Polska Grupa Energetyczna (PGE PW: +6.01%), EDP Renovaveis (EDPR PL: +3.81%) or Suez Environment (SEV FP: +3.02%). The IPOX Global Consumer Discretionary and the IPOX Global Financial Sector lagged again, on continuing declines in Macau casino operators SJM Holdings (880 HK: -4.95%) and Sands China (1928 HK: -2.63%). Selected Financial in Asia-Pacific and South America weakened with CapitaMalls Asia (CMA SP: -6.60%) and ever-volatile Banco Santander Brazil (BSBR US: -3.43%) under pressure.
IPOX Regional Indexes Action:
  • While the IPOX Europe (IXTE: +0.20%), IPOX Developed Asia-Pacific (IPTA: -0.04%) and IPOX China A shares universe (IPXUCAUP: +1.44%) traded in line to higher versus the benchmarks, the IPOX U.S. universe lost ground, adversely affected by big declines in global payment processors after the U.S. Federal Reserve’s initiative to put a limit on interchange fees, pressuring IPOX heavyweight Visa (V US: -16.58%).
  • Amid more selling in Ecopetrol (EC US: -6.44%), Redecard (RDCD3 BS: -4.81%) and Cielo (CIEL3 BS: -3.35%), the IPOX Latin America Index (IPXULATT: -2.10%) erased more of YTD’s positive performance.

IPOX-linked Financial products: Sources of uncorrelated Returns

Ticker
YTD (%)
Beta
Corr vs. S&P
Corr vs. DXIIX
DXIIX
+7.77%
0.21
-0.42
1.00
TFSMX
+5.86%
0.54
0.90
-0.40
JPMNX
-1.28%
0.37
0.44
-0.21
FMLSX
+8.69%
0.71
0.96
-0.40
TSPEX
+4.59%
0.50
0.70
-0.30
SPX
+13.73%
1.00
1.00
-0.42
FPX
+15.96%
0.99
0.87
-0.36

Performance of IPOX-linked Products available in the U.S. (DXIIX and FPX)

Initial Action in global IPOs:

Company
Ticker
Return over IPO
Walker & Dunlop Inc
(NYSE:WD) US
-1.10%
iSoftstone Holdings Ltd
(NYSE:ISS) US
35.03%
FleetCor Technologies
(NYSE:FLT) US
22.04%
Gain Capital Holdings Inc
(NYSE:GCAP) US
-6.11%
MIE Holdings Corp
1555 HK
0.00%
Otsuka Holdings Co Ltd
4578 JP
-5.71%
RigNet Inc
(NASDAQ:RNET) US
6.25%
Swift Transportation Co
(NYSE:SWFT) US
0.45%
World Wide Touch
1282 HK
10.53%
Chongqing Rural
3618 HK
0.19%
Biostime International
1112 HK
-5.09%
  • 29 global IPOs priced last week, with the average (median) non-China A share IPO (24 IPOs) gaining +17.03% (+1.90%). With H.K. IPO activity leading the subsequent strength in U.S. and European deal flow for the past two years, we note the continuing deterioration in the performance of H.K. IPOs with last week’s average deal closing below the offering price.
  • U.S. legal action over one of its key drugs by four of its competitors just one day after its IPO was enough to “leave a bad taste in the mouth” of initial investors in the IPO of Otsuka Holdings (4578 JP: -5.71%), one of Japans leading drug makers.

Upcoming IPOs: More H.K. IPOs – Our focus on Brazil:

Company
Ticker
Day
Lead
PAX Global
327 HK
21/12
CITIC Securities
Raia SA
RAIA3 BZ
21/12
ITABBA, BBINVE
Medical Net Com
3645 JP
21/12
Daiwa Securities
Changsha Zoomlion
1157 HK
23/12
CICC, GS, JPM
Hengxin Technology
1085 HK
23/12
Cinda
  • Despite approaching the end of the year, select deals are still scheduled to price in Hong Kong, Japan and Brazil during the upcoming week.
  • While we except to see continued weakness amongst H.K. listings, our focus is on Tuesday’s IPO of Raia SA (RAIA3 BZ), Brazil’s third largest drugstore chain.

We wish you a Merry Christmas and a Happy and Healthy Holiday Season.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Respective IPOX-linked Products (DXIIX and FPX) may be long and short aforementioned companies.