HONG KONG • The days of the massive first-day pop in Hong Kong's initial public offering (IPO) frenzy may be nearing an end.

Even as the pandemic spread for most of last year, the offshore Chinese city's IPOs and new listings were in hot demand from both institutional and mom-and-pop investors. With the bulk of new share sales posting large gains on their first-day of trading, investor euphoria was justified.

That was then. Last year's largely winning investor play of piling into IPOs and exiting after they debuted is no longer a slam dunk: 31 per cent of 13 IPOs raising more than US$100 million (S$134 million) posted losses on day one this year, almost double the 17 per cent in 2020. A median first-day move showed gains of 2.1 per cent in 2021 from 5.7 per cent last year, according to data compiled by Bloomberg.

Volatility sparked by the great rotation into previously unloved stocks sensitive to economic fluctuations from loftily valued tech and healthcare plays is to blame, according to investors. Others also pointed to worries about policy being tightened in China as weighing on investors' risk appetite for new stock.

"Most IPOs performed really, really strongly last year, but I'm not expecting that kind of movement this year," said Ms Joohee An, a fund manager at Mirae Asset Global Invest (HK). Investors will be "more prudent" as market liquidity "won't be as abundant as it used to be", she added.

WOBBLY PERFORMANCE

To be clear, listings by Kuaishou Technology and New Horizon Health still did unusually well last month, with shares more than doubling on the first day.

But lukewarm post-listing performances are increasing. Chinese household insecticide company Cheerwin Group slumped as much as 20 per cent on its first trading day last week. Biopharmaceutical company SciClone Pharmaceuticals Holdings ended its March 3 debut flat and is now trading 8.6 per cent below its offer price.

The secondary listing wave of United States-listed Chinese companies hasn't always had glowing debuts in Hong Kong. Autohome Inc, a Chinese online car-sales website with its primary listing in New York, ended its Hong Kong debut last Monday with a modest 2 per cent rise.

Not everyone is concerned, given rising concerns voiced by some that global markets were in bubble territory.

"When you have these deals that don't do well, it actually tells you that people are still being cautious about what they're investing in and what they're not, which is a good sign," said Mr Sumeet Singh, head of research at Aequitas Research in Singapore, who publishes on Smartkarma. "It means the market is doing OK."

REALITY CHECK

The upcoming multi-billion-dollar listings of Baidu and Bilibili will be closely watched to see if Hong Kong's IPO market still has steam, given their size and high profile as tech companies.

Baidu, which priced at an almost 3 per cent discount to its US-traded shares, will start trading on March 23. Investor demand for its offering was strong, with retail investors putting in orders for almost 100 times the stock made available to them, according to a person familiar with the matter. Bilibili, the video streaming platform that is looking to raise as much as US$3.2 billion in a second listing, plans to debut on March 29.

"I am definitely not concerned," said Mr Oliver Cox, a top-performing fund manager at JP Morgan Asset Management. In general, "the quality and long-term earnings growth prospects of the companies we see coming to market are still very high indeed and pricing of IPOs does not affect that", he said.

BLOOMBERG