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Summary:

Following U.S. option expiration, global equities declined sharply on a worsening global economic outlook and the European debt overhang. Spreads continued to move in favor of "safe haven" U.S. equities. With emerging markets collapsing, "accessible" IPO activity remained mostly shut with mainland China remaining the most active market.

Highlights:

  1. Global equity index spreads continued to favor the U.S.: Developed markets slumped last week, with "safe haven" U.S. large caps finally succumbing to the negative sentiment underlined by huge declines in foreign markets on global growth concerns, weakness in Financials on FED-induced yield curve action and the European debt overhang. Equity index spreads continued to move in favor of U.S. equities on liquidation selling and a repatriation of U.S. assets. For example, the spread between the MSCI All-Country xU.S. (MXWDU) and the S&P 500 (NDX) extended to a massive 1100 bps. YTD.
  2. IPOX Global Long/Short surges: Biggest beneficiary in the gyrations in global equities was the market neutral IPOX Global Long/Short Strategy (IPXULSU): The strategy rose +158 bps. on the week, extending the gain to 327 bps since the beginning of the quarter, underlining the powerful negative correlation potential of the global IPO asset as defined by IPOX.
  3. Big divergence in IPOX Developed Markets vs. IPOX Emerging markets:Amid this environment, trading in the IPOX Indexes reflected the trading dynamics in the global benchmarks: In the United States, the IPOX U.S. 30 (IPXT) erased all of last week's strong gains and fell 578 bps on the week, outperforming benchmark S&P 500 by 76 bps. A plunge in rare earth CA miner Molycorp (NYSE:MCP)(-33.14%) infused by a downgrade by JP Morgan was absorbed by big relative strength in credit card processors, including Visa (NYSE:V)(0.85%) and takeover candidate Mead Johnson (NYSE:MJN)(-1.82%). We note late relative strength in embattled IPOX heavyweight GM (NYSE:GM)(-7.12%).
  4. A reversal in global miner Glencore International (GLCNF.P)(-9.30%) on broad-based liquidation driven selling in global commodities pressured the IPOX Europe 30 Index (IXTE: -7.56%) vs. the benchmarks.
  5. Anything China-linked plunges: With the China-linked markets continued slump, the IPOX Asia-Pacific 30 (IPTA: -9.45%) - resilient for much of the year - plunged in line with Hong Kong's Hang Seng (HSI: -9.18%). Exposure to consumer-linked stocks and Macau-traded casinos, including China Dongxiang (-10.42%), Prada (-17.13%) or SJM (880 HK: -15.13%), pressured the index beyond the pan-Asian benchmarks. Australia's AUD 2.3 bn Treasury Wine Estates (TWE AU: +4.07%), 2011 spin-off, rose strongly.
  6. IPOX Emerging Markets closed with the biggest losses since 2008 with China and Latin America IPOX exposure trading in line with the plunging benchmarks.
  7. The big fall in IPOX Emerging markets was reflected in the performace of IPOX Global: The IPOX Global 30 (IPGL30: -8.19%) lost 64 bps. vs. the MSCI World Index (MXWD), remaining ahead by +300 bps. YTD.

Key IPOX Indexes Returns YTD:

Ticker (BBG/Reuters)

Return

Last Week (%)

Return

YTD (%)

Exposure

IPGLC (USD)

-9.82

-19.59

Global

IPGL100 (USD)

-9.12

-14.09

Global

IPGL50 (USD)

-9.42

-13.72

Global

IPGL30 (USD)

-8.19

-12.88

Global

IPXULSU (USD)

+1.58

-5.23

Global

IPXO (USD)

-6.53

-6.90

U.S.A.

IPXT (USD)

-5.78

-5.07

U.S.A.

IXTE (EUR)

-7.56

-21.48

Europe

IPTA (USD)

-9.45

-8.26

Asia-Pacific

IPXUEM (USD)

-11.71

-26.64

Emerging

IPXUBRIC (USD)

-12.77

-34.31

BRIC

IPXUCHCP (USD)

-13.45

-29.78

China

CNI (USD)

-14.01

-31.15

China

IPXUCAUP (USD)

-2.21

-15.69

China A

IPXULATT (USD)

-14.07

-27.05

LatAm

Most significant IPOs launched (Week 09/19):

Company

Ticker

Return / IPO (%)

Hongguo International

1028 HK

-14.78%

Guangdong Chant Group

002616 CH

-3.37%

Shenzhen Danbond Tech.

002618 CH

25.54%

Henan Mingtai

601677 CH

-13.55%

  1. Just one deal launched in the "accessible" markets with H.K. shoe retailer Hongguo (1028 HK: -14.78%) falling largely based on the big declines in the H.K. market.

More Asian small-caps in the pipeline:

Company

Code

Country

Lead Manager

Tenfu Cayman

6868 HK

China

CICCHK, CS

KLab Inc

3656 JP

Japan

Daiwa

PNE Solution

131390 KS

Korea

Kyobo

Active Group

1096 HK

China

Guotai Junan

Travel Expert

1235 HK

H.K.

N/A

China Hanking

3788 HK

China

BNP, CS, DB

  1. With H.K. falling by -11.06% over the past 9 trading days, we expect initial performance of the upcoming IPOs to be sensitive to the day-to-day sentiment in the HSI. Most relative upside is on tea product retailer Tenfu Cayman Holdings (6868 HK). The company was able to attract key cornerstone investors and is set to follow the initial success of U.S. based July 2011 IPO Teavana (TEA), dubbed “The Starbucks of Tea."
Source: The IPOX Week: Global Correlations Slump, IPOX Global Long/Short Surges