Growth Dragons Weekly: Hong Kong Stocks Surge, Midea and Yuanbao IPOs, China’s Lithography Advances, and Road Trip Boom
What happened in China this week:
Hong Kong Stocks Surge 5% on Rate Cut
Midea’s Blockbuster Hong Kong IPO
Insurance Broker Yuanbao Files for U.S. IPO
China Leads in AI Patents and Researchers, Claims to Be Closing the Gap in EUV Lithography Technology
Chinese Opt for More Road Trips and Longer-Distance Travel
#1 Hong Kong Stocks Surge 5% on Rate Cut
The U.S. has officially begun its rate-cut journey, with the first reduction being a substantial 0.5%. This is particularly welcome news for Hong Kong, whose currency is pegged to the U.S. dollar. As a result, Hong Kong has inherited the high interest rates from the U.S., which have not helped the economic slowdown in the Special Administrative Region (SAR). While Mainland China has the flexibility to cut rates to stimulate its economy, Hong Kong has been constrained by U.S. interest rates, exacerbating its economic challenges.
Now that the U.S. is cutting rates, Hong Kong has followed suit with a more modest 0.25% reduction. This move aligns Hong Kong with Mainland China’s interest rate cuts and is expected to provide a boost to the local economy.
Hong Kong stocks have reacted positively, with the Hang Seng Index (HSI) surging 5% this week, outperforming the broader MSCI China Index, which rose about 4%.
Of the 82 HSI component stocks, only two posted negative returns this week. The remaining 80 showed gains, with 13 stocks rising more than 10%, as detailed below.
These are some of the stocks that have been beaten down over the past three years, and the recent rate cuts are offering them some relief. While there may be opportunities to recoup further losses, many of these companies do not have the strongest fundamentals or business models to sustain long-term growth. However, there are undoubtedly gems in the Hong Kong stock market that are both undervalued and have good fundamentals. The rate cuts could bolster investor confidence, leading to an inflow of funds that might support higher stock prices.
#2 Midea’s Blockbuster Hong Kong IPO
Midea Group’s shares surged in their Hong Kong trading debut under the stock code 300. According to sources involved in the underwriting process, the international tranches, representing 95% of the 492.14 million new shares, were fully subscribed on the first day of offering. Local retail investors borrowed HK$4.38 billion via margin loans to subscribe before the book closed at noon on Thursday, resulting in an oversubscription rate of 2.3 times.
The shares are currently priced at the top end of the expected range, marking an 8% increase since their debut. Given the high demand from international investors, Midea may exercise an over-allotment option to increase the deal size to US$4.6 billion, potentially making it the world’s second-largest fundraising event this year, according to Hong Kong Exchanges and Clearing Limited. The strong demand is largely due to the IPO’s final price being set at approximately a 20% discount to Midea’s Shenzhen-listed share price.