Photographer: Justin Chin

In Hong Kong's IPO Frenzy, Stocks Go From Boom to Bust in Days

You don’t have to be a genius of late to make a killing in newly minted Hong Kong stocks. Just close your eyes and buy.

"I don’t care about fundamentals,” said Hei Chiu, a 34-year-old merchandiser and individual investor who says he only purchases initial public offerings. "Share prices just go up if there is strong demand," he said.

His strategy of chasing the hottest deals has worked like magic. Of 63 Hong Kong new share sales in the last three months, the top one-third of the most oversubscribed saw an average first-day rally of 60 percent, compared with a 27 percent gain for all IPOs, according to data compiled by Bloomberg. You better sell fast, though: rallies often fizzle after the first few days.

Arrangers of the city’s hottest deals have used famous consumer brands or celebrity links to lure investors. Among the successful ones are a bubble-tea franchise, a celebrity eye doctor and a producer of satirical media content.

Hottest Deals

Most Kwai Chung, B & S International charged ahead in first-day rallies this quarter

Source: HKEX, Bloomberg

Apart from tracking famous names, investors can look at margin loan data to gauge popularity. Brokerages such as Phillip Securities Group regularly update the amount of money investors borrow to bid for IPOs.

Hot IPOs

Bubble-tea maker B & S International Holdings Ltd. added froth to the market in Hong Kong’s second-hottest deal over the last 12 months. Retail investors jostled for a piece of the company this month, even though the retail business generates less than half of its revenue. Individuals ordered 2,601 times the shares originally set aside for them and B & S rewarded them by quadrupling on the first day of trading.

Most Kwai Chung Ltd., a provider of advertising and media services, surged as much as 880 percent in its debut this week. Retail investors ordered 6,289 times the stock originally available to them, a record subscription ratio in Hong Kong. The producer of satirical media content rose to fame after naming itself as a play on the Chinese characters of Television Broadcasts Ltd., the city’s biggest broadcaster.

C-Mer Eye Care Holdings Ltd., an eye-clinic operator whose founder is well known for catering to Hong Kong’s rich and famous, surged as much as 586 percent in the first three days. The retail portion of its IPO was more than 1,500 times subscribed in January.

Fizzle Out

The eye-popping rallies have a habit of sputtering soon after the first day. B & S has plunged 62 percent from its intraday record high, while Most Kwai Chung has tumbled 70 percent from Wednesday’s peak. C-Mer has seen half of its peak value erased.

Ulferts International Ltd., a furniture dealer, has lost 66 percent from its intraday record. The stock surged as much as 257 percent on the first day, after orders covered more than 1,600 times the IPO’s retail book.

— With assistance by Livia Yap

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE