Investors rush into 'new economy' as old industries snubbed

Just looking at the stream of tombstone ads placed in local newspapers, such as the , one could be forgiven for thinking Hong Kong's IPO market is taking off.

Twenty initial public offerings listed on the Hong Kong exchange in June, raising a combined US$3.3 billion, according to Thomson Reuters. Much of this activity is the result of bankers rushing out deals before accounts go stale in the second half, after which a refiling of listing documents is required.

That seasonal effect was amplified somewhat this year thanks to the Hong Kong exchange's implementation on April 1 of a rule requiring banks to submit accurate listing documents. If not accurate, the exchange will "return" them for revisions and disclose it on its website. This prompted an unusually large batch of listing applications before the April 1 deadline from bankers anxious to file under the old system, when their omissions and inaccuracies would remain a private matter between themselves and the exchange.

You also need to look closely at the IPOs that arrived in the first half. Some soared on excellent demand; others crawled across the finish line.

In the former camp sits new-economy stocks such as last week's enthusiastically received Luye Pharma float, and the June listings of Ozner Water and Kangda International Environmental, all of which priced at the top of their marketed ranges. In the latter camp sit Bank of Harbin, Qingdao Port, Tianhe Chemicals and China CNR - unfashionable old-economy stocks that struggled during marketing, with deals either downsized or priced at the bottom of the indicated range, or both.

This bodes well for the second half. WH Group is said to be looking to restart its deal "anytime now", in the words of one banker who worked on its first listing attempt (and who didn't?). The pork producer is carrying a US$4 billion syndicated loan that it took out to pay for its Smithfield acquisition, so it is under pressure to refinance. The question is whether investors will get excited about this old-economy stock even at a much diminished valuation. Pricing is being sounded out at about half the level indicated in April, when the issuer attempted to bring a US$6 billion float to market.