New Year, New Strategy 👊 Hong Kong’s IPO Graveyard 💀

by 31 Dec, 2018

  1. New Year, New Strategy   As the global equity market’s worst year since 2008 limps to a close, the traditional bull market strategies are being replaced to match a market in distresss. Growth-oriented sectors are no longer the glory-boys because 2019 is the year of the bear, and that means defensive instruments will be the flavour of the year! 2019 is set to start on extremely rocky ground after racking up the worst December performance since the Great Depression. Last week gave so many conflicting signals that investors don’t know whether they’re coming or going with record-breaking lone-day gains, new lows and massive reversals painting a decidedly confusing picture. The week ahead will be an important benchmark for 2019 with the US, UK, China, Germany and Canada releasing important manufacturing, unemployment and inventory data. Investors will be looking for signs of fundamental strength or weakness in the global economy to base their investment strategies for the coming months. The ominous presence of many defensive stocks, such as consumer staples & utilities in the top stock picks for 2019 points to the arrival of the bears and the weak state of investor confidence. It’s going to be an interesting year to say the least!
  2. Hong Kong’s IPO Graveyard 2018 was littered with the bodies of IPOs that failed to keep their heads above water in their first year of trading. Hong Kong, in particular, saw two thirds of its record $36.3 billion IPO flotations sink into the red after hitting the secondary market. Ouch! A slight change in Hong Kong’s regulations made it the 2018 IPO destination of choice, taking the crown from the NYSE with new-age tech companies flocking to be listed in Asia. This trend, however, may be changing in 2019 as the whopping 66.6% of IPOs still underwater has pointed out a number of problems associated with listing on the Asian exchange. Despite the attractive dual-class share structures and pre-revenue allowances for biotech firms, the Hong Kong Exchange has a fundamental liquidity problem. The exchange itself only pushes around $13 billion in volume a day which pales in comparison to the NYSE, relating more closely to Amazon’s $12 billion daily volume. Privatisation, PE buyouts and delisting from the exchange are also nearly impossible as minority shareholder protection is extremely strict. These factors coupled with plunging tech company values in 2018 points to a tough year ahead for the HKSE. Let’s hope the graveyard doesn’t expand too much in 2019!

Today we are watching…

1. AbbVie (#abbv)

We’re diving into the defensives today with AbbVie, which has managed to maintain a stable uptrend throughout last week’s madness. Abbvie provides an extremely attractive 4.5% dividend and is currently trading at less than ten times its earnings valuation, making it an extremely attractive prospect in a weakening market in 2019. Worth watching!

2. First Energy (#frstengy) With its strong defensive track record, First Energy, is looking good going into 2019 as utilities stocks absorb investors fleeing higher-risk sectors, such as tech. Its 3.9% dividend has become attractive to investors seeking safety in turbulent markets. Institutions, such as Vanguard, are also beginning to take a renewed interest in First Energy, so keep your eyes on this one!            

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