Asia markets rally


Stronger commodity prices support materials and energy stocks regionally
Chief Investment Office08 May 2018
Photo credit: AFP Photo


CHINA & HONG KONG

One of Hong Kong’s most popular investment strategies – borrow big and plough the money into a red-hot initial public offering (IPO) – is starting to fail, just as the city prepares to host Xiaomi Corporation’s USD10b listing.

Ping An Healthcare & Technology Company Limited’s IPO flopped after the retail tranche was more than 600 times oversubscribed. That dealt a blow to anyone hoping to flip the stock – a move that proved profitable last November when China Literature Limited surged as much as 100% on its first day.

Buying and holding the shares is not a palatable prospect, partly because scorching retail demand helped bump up the offer price. About three-quarters of the companies that raised funds in the city this year have dropped below their listing price, compared with average returns of 18% in the US. All of which adds to the dilemma facing investors in the run up to one of the biggest and most anticipated IPOs in years.

Chinese smartphone maker Xiaomi filed its IPO in the city last week (ended 4 May) under new rules allowing dual class shares. While the filing did not say how much Xiaomi is looking to raise, it is expected to be at least USD10b. That would be the biggest IPO globally since Alibaba Group Holding Limited’s USD25b debut in 2014. The company, controlled by billionaire Lei Jun, had revenue of USD18b last year.

After the Hang Seng Index’s best start to a year in more than three decades, Hong Kong’s benchmark gauge has stalled around the 30,000 level. Among recent popular IPOs, China Literature, Razer Inc, Yixin Group Limited, and ZhongAn Online P&C Insurance Company Limited are all down more than 40% from their peaks. – Bloomberg News.

The Hang Seng finished 0.23% higher at 29,994.26 on Monday (7 May). The Shanghai Composite Index climbed 1.48% to 3,136.64.

 

REST OF ASIA

Australia stocks rose at the open on Tuesday (8 May) amid another strong finish in Wall Street overnight. The S&P/ASX 200 Index added 0.15% to 6,093.80, after enjoying a broad-based rally on Monday (7 May) to finish 0.36% higher at 6,084.47. Nine out of 11 sectors finished in positive territory, with information technology and health care losing 0.17% and 0.02%, respectively.

Higher commodity prices supported energy (+0.78%) and materials (+0.75%) stocks. Miners BHP Billiton Limited and Rio Tinto Limited added 1.46% and 0.07%, respectively, after data showed China’s iron ore imports from Australia rose 3.3% in April from a month ago, Reuters reported. Crude oil reaching heights not seen in several years also proper up energy counters. Origin Energy Limited and Woodside Petroleum Limited climbed 2.57% and 0.77%, respectively.

Stock gains were capped ahead of the country’s budget announcement on Tuesday.

A sudden surge in revenue is allowing Turnbull to offer tax relief instead of paying down the country’s budget deficit as early as possible. He is gambling that workers saddled with record household debt and stagnant wage growth will vote with their wallets in an Australian general election that is due within a year.

There are two big risks to his strategy. Reserve Bank Governor Philip Lowe last week (ended 4 May) said while Australia’s economy was in generally good shape, it had “a lot resting” on US protectionism risks and China’s handling of its massive debt pile. While a windfall from company profits and commodity prices will be the biggest since the global financial crisis, an external shock could easily imperil Turnbull’s promised return to surplus by 2021. – Bloomberg News.

South Korea’s Kospi Index opened 0.55% higher at 2,474.81 on Tuesday. The country’s markets were closed on Monday for a public holiday.

The Taiwan Stock Exchange Weighted Index (Taiex) advanced 0.72% to 10,604.91.

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