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In a month dominated by sub-prime mortgage woes, the drying up of liquidity in banking and money markets and the "credit dislocation" in bond markets that saw yield spreads widen by 200 basis points (bp) or more, a palliative to Asian equity markets was provided by China's State Administration of Foreign Exchange (Safe).
On August 20, it said that it would allow domestic retail investors to invest in the Hong Kong stock market - which immediately led to soaring H-share prices. H-shares, the stock of mainland firms listed in Hong Kong, normally trade at a 50% to 75% discount to the A-shares of mainland companies which are either dual listed or just listed in Shanghai. So far, China has allowed only a selection of banks, insurers and brokerages to buy overseas securities under its qualified domestic institutional investor (QDII) scheme.
The news helped Asia's equity capital markets to overcome what were almost universally poor conditions, and meant that the volume of equity deals done in Asia (ex-Japan) was surprisingly healthy. Total equity capital markets (ECM) volume in August amounted to US$5.6 billion via 93 deals, 64% higher than the same month last year. This accounted for 19% of global ECM issuance during the month, up from 12% the year before and a testament to the torrid time other markets were witnessing.
United States investment bank Morgan Stanley was the most active underwriter during the month with a 15.1% share from participation in two deals. It adds to the bank's impressive year in equities; Morgan Stanley is heading overall ECM underwriting year-to-date with a 10.3% share.
China's gain
Initial public offerings (IPOs) from China remained the main game in town, with new issuers from the mainland continuing to attract enthusiastic support despite poor sentiment in almost every other sector of the capital markets.
On August 10, Franshion Properties (China) raised HK$3.3 billion (US$424 million) in a Hong Kong IPO organised by Deutsche Bank. The sale was made up of 1.41 billion shares representing 30% of the enlarged share capital. The offer was priced at HK$2.35 a share, the top end of a range starting at HK$1.85.
Just like almost all Chinese listings of late, the deal was hugely oversubscribed. The shares allocated to institutional investors...