Regarding the Hong Kong Stock Connect, there have always been vague statements in the industry such as "strict entry and wide exit" and "5 billion market value threshold". In the general impression of investors, for small and medium-sized stocks with a market value of no more than 5 billion yuan, it is difficult to enter the Hong Kong Stock Connect.
However, in the past year and a half, there have been several companies whose own conditions are not "hard" enough, such as Mace Health (02415), Yidianyun (02416), Laikai Pharmaceutical-B (02105), Superstar Legend (06683), HighTide Pharmaceutical-B (02511), etc., with an IPO valuation of around 5 billion, and a few monthly K-lines have not been drawn. Individual companies even stuck on June 29 on the day of listing, the next day is the Hang Seng Index semi-annual inspection closing day, only two days of trading data to break through, September can officially welcome the "North Water"!
What kind of precise operation does these new stocks rely on to achieve "fire line access"?
1. Several ways to incorporate Hong Kong Stock Connect
(1) Particularly fast access to large market capitalization
The inclusion of Hong Kong Stock Connect is not a problem for large companies with a market value of tens of billions.
Hong Kong stocks have a special fast-track access mechanism for this: "If the market capitalization of the Hang Seng Composite Index is in the top 10% of the total market capitalization of the Hang Seng Composite Index at the close of the listing day, it will be directly included in the Hang Seng Composite Index at the end of the 10th trading day after listing, and the effective date will be the 11th trading day after listing." "- The door is open, and there is no time limit for listing - when it will be listed, and then it will be in the next 10 trading days.
Of course, not all "top students" who can enter 10% of the total market value can directly enter the Hong Kong Stock Connect after 10 trading days. The exception here is a company with an "-W" weighted voting rights. The "-W" company has another set of rules:
The 3 conditions in the table above must be met:
A. Half a year of listing + 20 trading days (i.e. 7 months)
B. The average daily market value of the 183 days (inclusive) before the inspection date shall not be less than 20 billion
C. The total turnover of the 183 days (inclusive) prior to the survey date shall not be less than HK$6 billion
For example, J&T Express-W. The market value of J&T is more than 100 billion, and it can properly enter the "top student" with 10% of the total market value, but because of the "-W", it needs to wait for 183 inspection days. Therefore, although the listing date of J&T Express-W is October 27, 2023, the time for its official inclusion in Hong Kong Stock Connect is May 29, 2024.
(2) Fast inclusion channel for medium and large stocks
The Hang Seng Index company draws a line according to the market capitalization ranking of the companies listed on the main board of the Hong Kong stock market: the top 95% of the market capitalization ranks a line, the above ones are included in the Hang Seng Composite Index, and the following ones are excluded from the Hang Seng Composite Index (not absolutely 95%, with a buffer zone, as shown in the table below). Those who have been excluded from the index are not eligible for the Hong Kong Stock Connect examination.
In the "big class" of the Hang Seng Composite Index, which is qualified for the Hong Kong Stock Connect examination, it is divided into three classes according to market capitalization: the top 80% are Hang Seng large-cap stocks, the middle 15% are mid-cap stocks, and the remaining 5% are small-cap stocks. It is roughly divided in this way, but there is also a buffer zone, and HSI can flexibly grasp the adjustment, as shown in the following figure:
The HSI Index is reviewed four times a year, with the last review date being the end of March (quarterly), the end of June (half-year), the end of September (quarterly) and the end of December (annual review).
For large and medium-sized stocks with a market value of more than 10 billion, there are four opportunities to rush through 3.30, 6.30, 9.30 and 12.30 every year, as long as they enter the top 95% of the Hang Seng Index Composite Index (the buffer zone is a range of plus or minus two percentage points), that is, large stocks and medium-sized stocks (80% + 15%), then they are eligible to enter the Hong Kong Stock Connect - this is because in addition to the semi-annual inspection and annual inspection, the Hong Kong Stock Connect also has a "quarterly fast access mechanism":
and (3) inclusion opportunities for small caps
The market capitalization is small, if it can't enter 95% of the Hang Seng Composite Index, it will miss the "fast track" of 3.30 and 9.30 reviews, and can only break through the 6.30 semi-annual inspection and 12.30 annual inspection.
In addition to the market capitalization requirement, there are also liquidity requirements, which are as follows:
New stocks with large market capitalization and large and medium market capitalization, there is no need to worry about whether they can be included in the Hong Kong Stock Connect, because sooner or later they can be included.
Generally speaking, companies with a market capitalization of more than 10 billion are eligible for "rapid inclusion". Due to the large market capitalization and large trading volume, the timing of listing and access has little impact.
The most typical case of this kind of company this year is Suteng Juchuang.
Suteng Juchuang was listed on January 5 this year, and the market value on the first day of listing was 19.3 billion Hong Kong dollars, and even the market value corresponding to the lowest price after listing was about 15 billion. Therefore, the criteria were met in the review of the "Quarterly Rapid Entry" on March 31. As a result, the first Friday of June (June 7) was included in the Hang Seng Composite Index, and it was also included in the Hong Kong Stock Connect, and the effective date was June 11 (Tuesday) (Monday is the Dragon Boat Festival holiday).
The stock price closed up 13.57% on the day, and the highest intraday price of the day was HK$137.5, an increase of 71.9% from the previous day's closing price.
On the contrary, for new stocks with a small market capitalization (less than $5 billion), whether they can be included in the Hong Kong Stock Connect and when they will be included in the Hong Kong Stock Connect are crucial.
Second, why should small-capitalization new stocks strive for "fire line access"?
If a newly listed small-capitalization IPO is quickly included in the Hong Kong Stock Connect, there are three main benefits:
First, for the current Hong Kong stock market, in fact, the largest source of new funds is the Hong Kong Stock Connect. If it can be quickly included in the Hong Kong Stock Connect, especially if it can be included in one or two months, and then wait until the next quarter to land, it can also catch up before the lifting of the ban period. Then this can create a good opportunity for the lifting of the ban and undertake funds, and the investors in the first few rounds of financing will be more confident, and the psychological pressure will be much less.
Second, newly listed new stocks, whether it is a company, investors, brokers, and shareholders, are the time when enthusiasm is the highest. It is like a newlywed swallow, like glue and paint. If we talk about "market value management", this stage of "upward" management requires the least resources, the lowest cost, and the best effect. The market value is managed upward, and the helmsman of the listed company can also have a relatively good explanation for the VC/PE that has been with him for many years in the early stage and the cornerstone investors who have participated in the international placement.
Third, with the first two points, with the rise in stock prices, the expectation of upward market value is strengthened, the earning effect is good, the company has a good reputation, it will attract more investors, and positive feedback to the company's operation and management, forming a virtuous circle.
Third, which companies or "access" in this Hang Seng Index semi-annual inspection?
At the end of June, the Hang Seng Index semi-annual inspection, belonging to the top students and sub-top students of the shares are: Chabaidao, Mai FTSE, Quantumph-P, Quzhi Group, Auto Street, U.S.-China Jiahe and other shares.
Of course, there are also small-capitalization IPOs. For example, the two new stocks listed last Friday (June 28), Laopu Gold and Tianjudihe, coincided with the latest round of Hang Seng Index review on June 30.
Among them, the circulating market value of the old gold IPO was 6.68 billion Hong Kong dollars, and the market value swelled to 11.3 billion on the first day of listing, which was in line with the red line of the top 95% market value, so it is expected to be included in the next round of Hong Kong Stock Connect adjustment (September), which may be described as a perfect "fire line access".
Due to the market value of HK $4.17 billion on the first day, there is a certain distance from the entry threshold, but the bad thing is that the stock price plunged sharply at the end of the first day, causing the market value to shrink to HK $3 billion.
Fourth, in order to sprint to "get through", what preparations will small-capitalization companies make?
At this point, let's logically reason that assuming that the company's market value is about 4 billion, the company is expected to enter the pass a little, but if it lies flat after listing, or allows the stock price to develop naturally or even break, it is hopeless to enter the pass. And the incremental funds that can be brought by the access are completely lost.
Therefore, if the company knows that its market value cannot be "lying down" at the time of the IPO, but it is not completely hopeless, if the management has certain ambitions and wants to enter the Hong Kong Stock Connect after listing, then it needs to make a series of preparations before and after listing.
After listing, it is actually a clear card, using the resources of all parties to put the stock price up, meeting the standards of at least Hang Seng mid-cap stocks (that is, the market value ranks 80%~95% in the Hang Seng Composite Index), or entering the Hang Seng large-cap stocks (ranking in the top 80% of market capitalization), you can quickly incorporate the standard of quarterly inclusion in the next Hang Seng Index quarterly review, and then you can trade in the next quarter.
If you want to quickly raise the price after listing, you need to send as few goods as possible to individual investors during the IPO, and realize the return of goods to the side as much as possible, so as to affect the price through smaller chips.
If you want to send out as few chips as possible, you need to do some work before you go public. On the one hand, there is the "beggar's version of the issuance", that is, the proportion of issued shares in the total share capital is very low. In recent years, beggar's issuance has become more popular, mainly due to the cooling of the Hong Kong stock IPO market, too many issuances will go out, and retail investors will scatter in a hurry, resulting in serious pressure on estimates. If the issuance is relatively small, the company's ability to control the stock price is relatively strong.
One of the more typical beggars issued this year is Marketingforce, a domestic marketing big data solution provider, with only 2.53% of the total share capital. It is called "beggars among beggars". But there are only more beggars, not the most beggars. Last year's "beggar version king" was Beisen Holdings, which was listed at the most sluggish time in the market. The issuance ratio is only 2.12% of the total share capital. This can be seen as some kind of self-insurance behavior by the company.
The beggar's version strategy sometimes works. For example, this year's FTSE has successfully achieved a public listing, and its share price has been climbing all the way. Last year's Beisen Holdings' share price fell all the way and could not recover effectively.
Another strategy is to cleverly use the red shoe mechanism (i.e., the clawback mechanism) of the Hong Kong IPO to recover some of the chips, which is called "routine clawback". (abbreviated as "Routine Dialing")
Before explaining the routine, let's review the new callback mechanism for Hong Kong stocks. Generally, the issuance of new shares of Hong Kong stocks is divided into international placement and public offering, of which the international placement is mainly for institutional investors, while the public offering is for individual investors (retail investors), and the public offering is divided into Group A and Group B.
The general international placement accounts for 90% of the number of shares offered and the public offering accounts for 10%. However, if the public offering is too hot and the oversubscription rate is too high, a clawback mechanism will be triggered, and a part of the shares of the international placement will be "allocated" to the public offering, which means to put it bluntly: institutional investors will give up some of their chips to retail investors.
The relationship between the clawback ratio and the existence of oversubscription is relatively fixed:
But these are just normal situations. If the international placement itself is insufficient, then the sponsor has the right to clawback not in accordance with the corresponding rules. For example, the oversubscription ratio is 50 times, but when the international placement itself is insufficient, the sponsor can "artificially" reduce the clawback ratio to 20%. However, the price needs to be priced at the lower end of the price range.
Lowering the clawback ratio shows that the company does not want to send too many chips out, and the lower limit pricing is conducive to making the stock price upward after listing. With the cooperation of the two, there is a high probability that the stock price will go up after listing. If the company's market value is close to five or six billion, it will not be far from the "access" threshold after listing.
Fifth, listed companies should be wary of being harvested for the sake of "access".
It is true that some funds will lobby listed companies to sprint to the Hong Kong Stock Connect, but their real idea is to speculate on a wave to make quick money. Such funds are commonly known as "scammers under the guise of market value management".
This kind of money will also harm retail investors. Through some unofficial news such as small essays to spread the news, XXX company wants to "enter the pass", with their behavior of doing stock prices, retail investors will be fooled, blindly follow up, thinking that they can speculate until at least a day or two before the access. As a result, who knew that the capital just wanted to speculate for a day or two, and finally the retail investors took over at a high level. On the side of listed companies, they will use the selling pressure as a reason that they can't do it in the end, what can you bear it?
Therefore, whether it is a company or a shareholder, we must go the right way. As far as the company is concerned, before going public, it is necessary to make a plan for whether to "enter the market" in the future, and also have a general estimate of its own subscription, chip structure, and market funds for its own recognition. In addition, the work of IR and PR should also be prepared and arranged.
And for companies with not very good texture, there is no need for the overlord to make a bow and squeeze it desperately. If its own conditions are not enough, there is a risk of "scattering" after entering the Hong Kong Stock Connect, which will affect the company's reputation and reputation, and the long-term gains outweigh the losses.
Finally, the market before and after the "entry through" is also related to the market environment at that time. Companies and investors do not have to be confined to the gains and losses of the "access" for a while. In the long run, quality companies will eventually outperform; If there is no investment value, even if the short-term speculation is cool for a while, it will be difficult to sustain in the end.
Sixth, summary
Generally speaking, the current market situation is indeed not there compared with the IPO bull market in 2020~2021. From the company to the investors, as well as the underwriters, sponsors, and investors, the mentality and operation tend to be cautious. However, it is precisely in this context that it is necessary to make overall planning according to the actual situation of the market, and deal with the key time nodes of listing and access.
Of course, in the end, the long-term development of a market still depends on the company's fundamentals. Improving the quality of the company, taking the right path, and not playing financial skills is the basis for the stock market to grow slowly.