China’s new Nasdaq-style tech board gains ground


Spinoff listing on the tech board is an attractive investment theme for the stock market
Chief Investment Office20 Jun 2019
Photo credit: AFP Photo


CHINA & HONG KONG

China’s new Nasdaq-style tech board could become a hotbed for companies to spin off and list units domestically, something that has not been much of an option until now.

At least nine companies listed in Hong Kong and mainland China have decided to or are considering spinning off parts of their businesses on the freshly launched SSE STAR Market. One of them, Western Metal Materials Co Ltd, surged by the 10% limit for two days in a row after disclosing its plans in early April. Lepu Medical Technology Beijing Co Ltd climbed 13% over a similar timeframe.

The Shanghai and Shenzhen stock exchanges have been inundated with investor queries about spinoffs on the new board, where the first listing is expected in the next two months. The bourse is in part aimed at stemming an exodus of listings by innovative Chinese firms. Suzhou HYC Technology Co Ltd is the first to start an initial public offering there, filing a preliminary prospectus this week (ending 21 June).

Investors and companies were encouraged by the China Securities Regulatory Commission (CSRC) saying earlier this year that companies of a certain scale would be able to list qualified subsidiaries separately on the tech board, though it did not elaborate. The CSRC, which has historically been reluctant to approve spinoffs at home, did not immediately respond to a request for comment.

Domestic spinoffs appeal as they would give investors on the mainland fresh buying opportunities in China, while parent companies can potentially streamline operations and have seen boosts – at least in the short term – to their share prices. The nine companies that announced spinoff plans all rose in subsequent days.

The tech-heavy ChiNext Index trades at around 20 times forward earnings, while Hong Kong’s Hang Seng Index is at 11 times. Both gauges have had a rough few months as the trade dispute with the US escalated, but they have still posted gains year-to-date despite slipping from April highs: the ChiNext is up 18% in 2019 and the Hang Seng has added 9%.

The newly named SSE STAR Market has attracted attention in part because of its simpler listing process, including waiving restrictions on how companies are priced, theoretically making it less onerous for applicants. It has not all been clear sailing though: the Shanghai exchange has complained that many filings lacked sufficient details and contained too much jargon. – Bloomberg News.

The Shanghai Composite Index rose 0.96% to 2,917.80 and the Hang Seng Index climbed 2.56% to 28,202.14 on Wednesday (19 June).

 

REST OF ASIA

Indonesia is on track to join the Philippines in a new monetary-easing cycle as a darkening global outlook forces Asia’s most aggressive interest-rate hikers of recent times to reverse course.

While Bank Indonesia is widely expected to leave its benchmark rate unchanged Thursday (20 June), the central bank has offered its strongest signal yet that cuts are on the horizon. Bangko Sentral ng Pilipinas, which pulled the trigger with a quarter-point reduction in May, is seen moving again on the same day.

Indonesia and the Philippines each hiked interest rates by 175 bps last year, which helped their currencies rebound and kept inflation in check amid an Emerging Markets rout. But in 2019 the story has changed: waning global demand, a worsening US-China trade war, and a cautious Federal Reserve is making Asian central banks from India to Australia shift toward looser monetary policy to bolster economic growth.

While Philippine inflation quickened last month, it remains within a 2-4% target and had been slowing since October. But with disappointing economic growth in the first quarter, Bangko Sentral Governor Benjamin Diokno may further step on the monetary easing gas. A survey by Bloomberg shows 16 of 24 economists predict a 25 bp cut to 4.25% on Thursday.

Bank Indonesia Governor Perry Warjiyo this week (ending 21 June) said there is room to ease monetary policy, after earlier warning that Southeast Asia’s biggest economy will probably grow below the midpoint of a 5-5.4% forecast this year. But the risk of global uncertainty once again rattling financial markets and spurring capital outflows is complicating his decision.

Only six of 34 economists in a Bloomberg survey, which started before Warjiyo made his comments this week, see a lowering of the benchmark rate to 5.75% on Thursday, with the rest predicting a hold. A surprise cut would be Indonesia’s first since September 2017. – Bloomberg News.

The S&P/ASX 200 Index inched 0.05% lower to 6,644.60 in early-Thursday trading, reversing its 1.19% gain to 6,648.13 the previous session.

South Korea’s Kospi Index opened little changed at 2,125.05 on Thursday. The benchmark rose 1.24% to 2,124.78 on Wednesday.

The Taiwan Stock Exchange Weighted Index (Taiex) climbed 1.97% to 10,775.34.

 

This information herein is published by DBS Bank Ltd. (“DBS Bank”) and is for information only.  This publication is intended for DBS Bank and its subsidiaries or affiliates (collectively “DBS”) and clients to whom it has been delivered and may not be reproduced, transmitted or communicated to any other person without the prior written permission of DBS Bank. 

This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such.

The information herein may be incomplete or condensed and it may not include a number of terms and provisions nor does it identify or define all or any of the risks associated to any actual transaction. Any terms, conditions and opinions contained herein may have been obtained from various sources and neither DBS nor any of their respective directors or employees (collectively the “DBS Group”) make any warranty, expressed or implied, as to its accuracy or completeness and thus assume no responsibility of it. The information herein may be subject to further revision, verification and updating and DBS Group undertakes no responsibility thereof.

All figures and amounts stated are for illustration purposes only and shall not bind DBS Group. This publication does not have regard to the specific investment objectives, financial situation or particular needs of any specific person. Before entering into any transaction to purchase any product mentioned in this publication, you should take steps to ensure that you understand the transaction and has made an independent assessment of the appropriateness of the transaction in light of your own objectives and circumstances. In particular, you should read all the relevant documentation pertaining to the product and may wish to seek advice from a financial or other professional adviser or make such independent investigations as you consider necessary or appropriate for such purposes. If you choose not to do so, you should consider carefully whether any product mentioned in this publication is suitable for you.  DBS Group does not act as an adviser and assumes no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from any arrangement or entrance into any transaction in reliance on the information contained herein.  In order to build your own independent analysis of any transaction and its consequences, you should consult your own independent financial, accounting, tax, legal or other competent professional advisors as you deem appropriate to ensure that any assessment you make is suitable for you in light of your own financial, accounting, tax, and legal constraints and objectives without relying in any way on DBS Group or any position which DBS Group might have expressed in this document or orally to you in the discussion.

If this publication has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of the Information, which may arise as a result of electronic transmission. If verification is required, please request for a hard-copy version.

This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

Singapore: This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) ("DBS") which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the "MAS").