Attention investors!

M+ Global is soon launching a HK IPO subscription feature, and we want you to make the most of it.

But before that, let's brush up on some IPO basics. Understanding the fundamentals of initial public offerings can be the key to unlocking massive gains in the stock market.

Let's take a look!

What is an IPO?

Have you heard about Autocount Dotcom Berhad?

The popular Malaysian software company made its debut on the ACE Market of Bursa Malaysia at RM1.09 per share, representing a 76 sen premium or 230.3% over its IPO price of 33 sen per share on 9 May 2023. The company has announced an oversubscription rate for its initial public offering (IPO) 167 times. The counter closed at 75 sen on its maiden trading day — a 127.27% or 42 sen jump over its IPO price — with a market capitalization of RM 412.88 million. It was the most active counter on Bursa Malaysia with 277.31 million shares traded upon closing.

IPO, also known as an initial public offering, is beneficial for both investors and the company itself. Investors can earn an unlimited profit when participating in an IPO with potential growth. As for the company, it’s a way to raise capital and increase its public awareness since IPOs often generate publicity by making their products known to a new group of potential customers. Subsequently, this may lead to an increase in market share for the company.

Pros & Cons of Investing in IPOs

Pros:

If you are lucky enough to get an IPO ballot and sell it on the first day of listing, the probability of making money is very high.

In the initial stage of IPO listing, the stock price fluctuates greatly, and short-term investors may have greater opportunities to profit from it. After a company gets funds from listing, it will have more ability to develop its business and is able to provide more return to investors.

Kuaishou (01024. HK), the Chinese social media behemoth, made waves with its highly successful IPO on the Hong Kong Stock Exchange in 2021. The company's shares closed at HKD300, a remarkable 161% surge from their initial issue price of HKD115 ($14.80). This impressive debut made Kuaishou's IPO one of the largest in the world since 2019. In grey market trading, Kuaishou's shares surged an astonishing 192.70% to HKD336.60, with one lot (100 shares) earning investors around HKD22,000 ($2,830) in paper profits.

Moreover, since regulated by Securities Exchange Committees such as Bursa Malaysia, HKEX, and SEC, companies are required to issue a Prospectus before listing. We can use the Prospectus to gain an in-depth understanding of the company before making investment decisions.

Cons:

The fluctuation of IPO stock prices is a double-edged sword.

With great fluctuations, investors who are not familiar with the technical aspects will face greater risks. Secondly, IPOs are usually issued at a higher valuation. If the company's performance does not improve to meet analysts’ expectations but drops after listing, the stock price will fall below the IPO issue price in the future.

Therefore, short-term traders are more suited to investing in IPOs. The reason is that the probability of making money by selling on the first day of IPO listing is relatively high, coupled with the violent stock price fluctuations, investors who are familiar with technical aspects can also find profitable buying and selling points.

For long-term investors, investing in IPOs is relatively risky.

The reason is that the prospects of many IPO companies are unclear. While there are prospectuses for reference, many companies beautify their financial statements and prospectuses in order to increase their valuations, resulting in less accurate information. In addition, the prospectus only provides information for the past 3 years, without enough historical information to prove that the company can maintain profitability and growth in the future.

When investing in IPOs, if you are a technical trader, you need to be aware of price fluctuations and the risks involved. And if you are a value trader, you should conduct as much research as possible.

With that said, IPOs in the Hong Kong market offer you a delicious slice of the pie to taste the big and exciting global investment opportunities, with liquidity and a high percentage of return.

Start investing in IPOs and discover the great big world with M+Global.

Finally, we hope you found this article informative on the basics of investing in Hong Kong IPOs. Stay tuned for future articles where we'll be sharing more important information on this topic.

.