A Beginner's Guide to IPO Subscription in Hong Kong Stocks--Must-Know Terms for New Subscribers.
The market has improved recently, and the performance of new stocks has been quite good. For example, Karry Over subscribed more than 1,000 times, with a gray market increase of 77% and a first-day increase of 58%.
China Resources Beverage also received over 200 times subscription.
With a higher winning rate than A-shares and decent gains, many newcomers are quite interested in new stocks. (Of course, there are also many new stocks that break below their issue price.)
As a naive investor who has been participating in new stock subscriptions for nearly 7 years, I’ll give you a beginner’s guide today to help you understand the terms related to Hong Kong stock subscriptions.
Entry Fee: The minimum subscription for Hong Kong stocks is 1 lot, and the money required to subscribe for 1 lot is the entry fee. The entry fee varies for each new stock, generally around HKD 2,000 or 3,000, with some as high as over HKD 10,000 per lot. However, most are around HKD 3,000.
Subscription Period: The subscription period for new stocks is usually only 3 days, after which it closes, so you need to subscribe before the deadline.
Listing Day: The first official day a new stock is listed. After switching to the fini system, the official announcement of the lottery results is also released on this day.
Gray Market: On the day before the listing, trading can be conducted in advance from 16:15 to 18:30, usually matched internally by brokers and traded on apps, similar to regular stock trading. Currently, brokers supporting gray market trading include Futu, Phillip, and Bright Smart, while others typically access their gray markets for matching.
Lottery Results: After switching to the fini system, most brokers can check the lottery results in their apps on the day before the gray market.
Public Offering: Accounts for 10% of the issued shares and is usually participated in by retail investors.
International Placement: Accounts for 90% of the issued shares and is usually participated in by institutions.
Group A and Group B: The public offering shares are equally divided between Group A and Group B. Subscriptions with a total amount exceeding HKD 5 million are classified as Group B (essentially large investors), while the rest are Group A.
Margin/Over-subscription Multiple: The total number of shares subscribed by retail investors divided by the number of shares in the public offering, or the total amount divided by the public fundraising amount. The over-subscription multiple usually reflects the enthusiasm and sentiment of retail investors. During the subscription period, institutions (e.g., Trading Central) will conduct (incomplete) statistics on subscriptions from various brokers.
International Placement Multiple: The total number of shares subscribed by institutions divided by the number of shares in the international placement. This reflects the enthusiasm and sentiment of institutional investors.
Clawback: According to regulations, priority is given to retail investors. If the public over-subscription multiple is high, the allocation ratio between the public offering and international placement will be adjusted.
The default is 10% for the public offering and 90% for the international placement, which can be adjusted up to 50% each. This won’t be elaborated on here; it will be covered separately next time.
Margin/Financing Subscription: A transliteration of "margin," it refers to financing subscriptions. Financing can be used to subscribe for new stocks, increasing the winning rate because the more you subscribe, the higher the probability of winning.
Note that there are two types of financing: bank financing and broker financing.
Bank financing allows for 10x leverage, 20x for hot stocks, and some brokers even support 50x leverage.
Moreover, most brokers now offer bank financing with no interest, while a few still charge interest.
Broker financing uses your purchasing power for subscriptions. For example, if you hold HKD 100,000 worth of Tencent with a 60% collateral rate, you can use HKD 100,000 * 0.6 = HKD 60,000 for subscriptions. Broker financing requires paying interest!
If you combine this HKD 60,000 with 20x bank financing, you can subscribe for HKD 1.2 million worth of new stocks.
For a new stock with 500x over-subscription, even with 20x financing, the winning amount usually won’t exceed the principal because 500x far exceeds 20x.
After reading this, you should have a basic understanding of most terms related to Hong Kong stock subscriptions, though it’s simplified due to space constraints.
Each point could be expanded into a separate topic, such as clawback, how to increase your winning rate, and how to control risks.
A complete guide to Hong Kong stock subscriptions has been compiled before. Reply "Hong Kong stock subscriptions" in the backend to get it. $TENCENT(00700.HK) $CAROTE(02549.HK) $CR BEVERAGE(02460.HK)
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