HONG KONG – Sales of shares in Hong Kong by previously listed companies had their best start to the year, with issuers tapping into abundant global liquidity and investors’ thirst for Chinese assets.
The liquidation of stakes by major shareholders and the offers of follow-up shares and convertibles from January 1 to April 26, 2021 have already reached $ 47 billion, almost the equivalent of the $ 47.8 billion raised in 2020 and almost four times the volume of transactions. during the same period last year, according to data compiled by Dealogic.
Investors’ thirst for yield amid low global interest rates is driving demand for equities, including initial public offerings and secondary offerings, prompting companies to ignore recent price declines actions. Volumes in Hong Kong were aided by the appetite of Chinese and global investors for mainland stocks which are benefiting from the economic recovery in the country after taking control of the coronavirus pandemic.
“There’s a lot of liquidity in the system, and we’re in a market where investors don’t really want to sell stocks,” but prefer to buy or own stocks, said Tucker Highfield, co-head of equity markets for Asia. -Pacific to Bank of America.
“So you have a backdrop where you expect the market to just go up,” he said. “Suites are a way to give investors slightly lower prices in a market that is expected to rise.”
Global liquidity has been supported by loose monetary policy, extremely low interest rates and fiscal stimulus packages unveiled by governments to contain the fallout from the pandemic. Hong Kong’s aggregate balances – the sum of commercial bank clearing and reserve account balances with the Hong Kong Monetary Authority – are near record highs, de facto central bank data shows, fueling demand riskier assets such as stocks.
Asia ex-Japan mutual funds are also sitting on relatively high cash ratios, allowing them to “digest the new offering,” Goldman Sachs analysts led by Si Fu in Hong Kong said in a report. April 30. These funds hold around 3%. of their total assets under management of $ 151 billion in cash now, well above their historical average, they said.
New listings in Hong Kong also had a record start to the year, with volumes in the first three months climbing to nine times those of the same period in 2020, according to data from the Hong Kong Stock Exchange.
Global secondary offerings, at $ 255 billion for the first four months of this year, also had the fastest start to the year since at least 1995, according to Dealogic, although volumes account for 40% of the total. year 2020.
The secondary surge in share sales in Hong Kong comes as new listings have faded, as online search operators Baidu and travel platform Trip.com encounter each other with subscription levels below those of other recent offers on the continent and of weak negotiating beginnings. Nine of the 14 listings in Hong Kong since early March are trading below their issue price, according to exchange data.
Tech stocks accounted for half of secondary offerings during the January-April period in Hong Kong, followed by healthcare, auto and consumer products, according to Dealogic.
The sale by Amsterdam-listed investment group Prosus of a 2% stake in Chinese internet conglomerate Tencent Holdings for $ 14.7 billion last month was the largest sale of secondary shares this year. . Prosus remains Tencent’s largest shareholder after the sale, with a 28.9% stake.
Other deals include Chinese food delivery company Meituan’s $ 7 billion offer last month and Chinese electric vehicle maker BYD’s $ 3.9 billion sale in January.
“China’s rapid recovery and continued demand for funds and foreign inflows are in perfect match at the moment,” said market analyst Fraser Howie, co-author of the book “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise “.
“As the centenary of the Chinese Communist Party approaches, there is a feeling that nothing can derail Xi’s party and the money is flowing,” he said, referring to the centenary of the party’s founding. and President Xi Jinping.
China, which was the only major global economy to grow in 2020, is expected to grow 8.5% this year, according to a survey of 32 economists by Nikkei. The economy is expected to benefit from a recovery in domestic and foreign demand for goods and services after authorities brought the pandemic under control last year and vaccinations accelerated across the world.
Although the notional amount of equity issuance in Hong Kong is high this year, it is still well below the 2016 high and the past decade average as a proportion of overall market capitalization, Goldman analysts said. Since the start of the year, new capital raised represents 2.1% of the current overall market capitalization, up from 3.4% in 2016 and the average of 2.4% since 2011, they said.
The capital raising in Hong Kong is also indirectly supported by mainland investors, Goldman analysts said. On average, purchases by mainland investors account for 10% of additional investments of over $ 2 billion and up to 50% in some transactions through the Stock Connect program that connects Hong Kong to the Shanghai and Shenzhen stock exchanges.
Mainland investors “may not be able to participate directly in offshore placements, but their post-deal involvement has been noticeable,” Goldman Sachs analysts said.
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