Pricey IPOs weigh on HKEX

Investors losing interest in 'hyped' stocks of new economy companies

A group of Hong Kong-listed new economy companies have fared poorly so far this year, throwing cold water over the city's once red-hot stock market that is mired in overpriced IPOs, and hinting at a market-wide focus shift.

The Hang Seng Index was down 1.82 percent, or 568.71 points, to finish at 30,665.64 points on Wednesday.

"I would not say the market is not upbeat on new economy companies anymore. But it shows signs of a shifting focus from 2017," said Fielding Chen Shiyuan, Asia economist at Bloomberg Intelligence in Hong Kong.

"More importantly, the tepid response has sounded alarm bells to investors, who had blindly chased after the much-hyped unicorns ($1 billion startups) without the slightest idea about their fundamentals. It may put an end to the good old days, when a unicorn or new economy tag was good enough to guarantee the IPO would live up to the hype."

Ping An Healthcare and Technology Co Ltd's HK$8.8 billion ($1.1 billion) listing came as the first mega-deal on the Hong Kong stock exchange this year. It joined a group of once highly sought-after new economy companies that have fallen from grace to trade close to or below their IPO prices.

The operator of mainland online healthcare platform Ping An Good Doctor saw its shares close unchanged from the IPO price of HK$54.80, before extending losses to finish below the IPO price on its second trading day. The disappointing performance put Ping An Good Doctor in the same boat as Razer Inc, Yixin Group Ltd, China Literature Ltd and ZhongAn Online P&C Insurance Co Ltd. The companies fed the new economy IPO frenzy in Hong Kong last year, but have seen a combined HK$177 billion sell-off in market capitalization from earlier highs.

Shares of ZhongAn Online P&C Insurance are down more than 48 percent from post-IPO peaks. More than HK$69 billion was wiped off its market capitalization, making the Tencent Holdings Ltd-backed company the biggest loser among the four.

Yixin Group surrendered most of its early gains and saw its market value dip almost HK$39 billion from its peak. Razer's share price was more than halved, according to data from the Hong Kong Exchanges and Clearing Ltd, the operator of the Hong Kong bourse.

China Literature remains the one and only survivor, with its share price managing to sit above the IPO price. However, it has plunged more than 40 percent from earlier highs.

The dismal performances are casting a shadow over Xiaomi Inc, which has reportedly trimmed its valuation for its blockbuster Hong Kong IPO, which could raise at least $10 billion.

Xiaomi was previously said to target a valuation of as much as $100 billion. But within just a week, investors reportedly voiced mounting concerns over the company's high valuation, which eventually dragged the figure to between $60 billion and $70 billion.

Most of the new economy companies－largely new and small firms in high-tech and healthcare-related sectors－do not have a long track record of reporting revenues or profits, and face uncertainty in cashing in on their technologies, said BOCOM International Strategist & Head of Research Hong Hao.

The tepid response may follow the twists and turns of the benchmark Hang Seng Index, which has been haunted by the specter of the United States Federal Reserve interest rate hike and China-US trade dispute this year, said Chen. The tepid performance has weighed on the weak fundamentals of those loss-making unicorns, he added.