Monday, 22 June 2009 (Mid-day Post)

Summary
Hang Seng Index 18,373.080 (Change: +452.15/2.52%)
Range: 17,906.39 - 18,398.92
Turnover HKD37.117B.

Hang Seng Index
What a way to start-off a Monday. The market initially opened -14 points, but almost within minutes, driven from positive IPO opening prices and benefiting news from China, led by property and Chinese banking stocks, HSI continued to drive upwards. Turnover slightly higher, though still below May's rallying daily average.

What's the good news from China? Well earlier during the past weekend Grandpa Wen publically stated on state media that China's stimulus have been working, China's economy is showing signs of recovery and that the central government will continue to ease credit policy to support economic growth. Quite honestly, it's not anything we don't know about yet, but I guess even the slightess release of gas from Grandpa Wen or Grandpa Hu can really trigger market rallies.

So, after the ~1,000 correction last week, in a short 2.5 hours, HSI recovered the 18,000 mark; pushing up above the 10-day and 20-day moving average. Considering this is the last full week of trading for June, also the first half of 2009, I'd expect the HSI to continue rallying, ending the week quite possibly at the 19,000 mark. Why? 1H09 results will be better for the aggregate of portfolios, though not the absolute driver of the market, it's definitely a contributor. Post June though, I'd be more careful.

China Construction Bank (0939.HK)
News also came out of China today that personal loans rose after a period of laggard news. All Chinese banks rose across the board today, with CMB leading the way. Though CCB initially lagged the rally (actually dropping slightly at first), it eventually followed-suit, closing mid-day at HK$5.89, reaching a high of HK$5.92. Closing the day at HK$6.00 is very possible, though if not, technicals are pointing to it, and I'm definite it will before the week closes off.

New IPOs for Today
Hype, hype, hype! With three more IPOs out for subscription in the pipeline, the two new ones today definitely added to the hype with their wicked first day performance. IPOs have been rallying recently, and on average have lasted over a week with continued price appreciation. In the past month, IPOs have closed up anywhere up 60% to 270% above their initial prices.

1. China Metal Recycling (0773.HK), as the name suggests, they collect items from refrigerators to kettles, etc. to recycle and reprocess the metal. Quite interesting with an environmental-focus. IPO price was set at HK$5.18, which it's price opened at HK$6.30 (+21.62%), and closed mid-day at HK$6.44 (+24.32%)

2. Hing Lee (0396.HK), is a simple household furniture production company, which amongst the two, has the lowest market cap. IPO price was set at HK$1.02, but opened at $1.30 (+27.45%), and closed mid-day at HK$1.46 (+43.14%).

Surprisingly, both of these IPO subscriptions lacked any major hype or news. But after their performance, and after three months of market rally, I'm pretty sure relatively more capital will flow into the coming three IPOs. I wanted to talk a bit about the most hyped of the three:

Ba Wang International (1338.HK). I mentioned briefly about this one last week, the one with Jackie Chan as its spokes-person. Surprisingly, its also the one that's building the most hype. Ba Wang specializes in herbal-base shampoo and hair products, often called the herbal "Proctor & Gamble" of China. That name alone raises an eyebrow of interest. In China, it ranks fourth in most commonly purchased shampoo products:

1. Rejoice (by P&G)
2. Pantene (also by P&G)
3. Head & Shoulders (again by P&G)
4. Ba Wang (finally not P&G)

Being in the consumer products business, Ba Wang spends a massive amount on advertising and marketing. But that aside, it does maintain quite impressive gross margins at 63.9%. It also accounts for ~40% of the "herbal-based" consumer products market in China. At IPO prices set to HK$1.95 - HK$2.38 a share, the price is approximately 13x - 18x earnings, more or less around the 13x that P&G trades at (although that's in the US market).

Simply also put, Ba Wang will be the first shampoo based company, and one of the very few Chinese-based consumer products company to list in Hong Kong. Given that today's the first day its open for subscription, I shall monitor the IPO loan progress, which serves to act as a very good indicator on its popularity.