Sticking to the right and being unconventional, what are the speculative strategies for applying for new stocks in Hong Kong?

For stock trading, there are two schools of thought, one is the investment faction driven by fundamental analysis, and the other is the speculation faction driven by technical analysis.

In the new stock trading in Hong Kong, there are also two factions: one is the investment faction based on fundamental analysis, and the other is the speculation faction mainly driven by market news. In our previous classes, we introduced the logic of selecting stocks based on fundamental analysis. In this class, we will introduce several common speculative strategies.

Learn here: Stocks Investment Basics Fundamental Analysis

The first speculative strategy is probability speculation.

This starts from historical data statistics to find new stocks with high average price increases and low opening rates. How do we find these types of new stocks? Let's directly look at the historical data of new stock performance.

We have compiled the following table from the perspectives of financing scale and oversubscription ratio of over 800 newly listed stocks in Hong Kong since 2017.

Out of these 800+ new stocks, the overall average price increase is 11.7%, indicating that new stock trading as a whole is profitable. The average opening rate is 34.8%, indicating a good success rate in new stock trading.

What we are truly interested in is finding new stock types with significantly higher average price increases than the average, and opening rates lower than the average, mainly the three types highlighted in the table.

The first type is new stocks with financing scale below 0.25 billion and subscription ratio below 15 times (without triggering a callback). These new stocks have an average price increase of close to 30% and an opening rate of less than 1/4, both better than the average performance of new stocks. This is because in the absence of triggering a callback, retail volume accounts for only 10%, far lower than the institutional proportion of 90%. In addition, with a small financing scale and a small float, institutional funds may be more willing to push up the price.

In the new stock bull market environment, most small stocks will trigger pullbacks, so these speculative opportunities are relatively rare. However, in a bear market environment, because the overall subscription sentiment for new stocks is weak, these types of new stocks turn out to be good structural opportunities.

The second type is stocks with financing amounts below 0.25 billion and oversubscription ratios exceeding 500 times, with an average increase of over 50% and an average breakage rate of less than 15%. This is because although these stocks trigger pullbacks, their small scale and low winning rate lead to strong holding sentiments, making their performance worth a look.

Currently, Futu offers zero bank interest for new stock financing and provides leverage of up to 200 times, with low capital requirements and costs. Many small stocks are oversubscribed by thousands of times, causing distortion in oversubscription ratios. Even 5000 times may not truly represent the heat, highlighting the need for us to dynamically track this issue.

The third type is large stocks with financing amounts above 0.75 billion and oversubscription ratios exceeding 500 times, with an average increase close to 50% and an average breakage rate of less than 10%. Most of these are driven by fundamentals, but new stocks that can achieve high oversubscription ratios are also generally of good quality and have promising listing expectations.

However, these new stocks also face the issue of distortion in oversubscription ratios. Therefore, in the current new shares subscription situation, it may be necessary to adjust to over 1000 times in order to have a pure speculative participation logic.

For the financing amounts and oversubscription ratios of new stocks, we can track them on the Futubull new stock subscription page. The process is as follows. It is essential to note that the new stock subscription ratios are dynamic, and we need to infer and track the subscription situation based on the latest subscription ratios to make speculative subscription decisions.

The second speculative strategy is the Greenshoe arbitrage.

This is also a feature of the Hong Kong new stock market. Many new stocks will issue an additional 15% of shares. Sponsors can use the extra money from selling these shares to buy back and support the stock when new stocks break, which is the Greenshoe mechanism in the Hong Kong new stock market.

Due to the existence of the greenshoe mechanism, some investors will Buy when the new stock breaks below the issue price in the dark pool, and expect the underwriter to Buy and protect the price on the first day of listing, pulling the stock price back above the issue price, so that those who bought in the dark pool can profit from the price difference, this is the speculative operation of greenshoe arbitrage, theoretically feasible.

However, here, it is necessary to focus on the stabilizing execution power of the underwriter. After all, when a new stock breaks below the issue price, the underwriter may only Buy and protect the price, but this is not necessary. Moreover, in order to earn more price difference, the underwriter may allow the stock price to drop significantly, and then Buy when it bottoms out. Therefore, we may need to pay more attention to the historical performance of the underwriter on the first day of listing of new stocks, institutions with poor historical underwriting performance, we may need to be more cautious when engaging in speculative operations.

The third speculative strategy is the routine callback game.

What is a routine callback? It means that under certain conditions (lower limit pricing + insufficient allocation to retail investors), in the distribution of new shares, some of the shares that should have been callback to retail investors can be allocated, reducing the callback to some extent. In other words, institutions behind the new shares are unwilling to distribute shares to retail investors, which is certainly a significant Bullish signal for the performance of new stocks. Historically, new stocks involved in a routine callback have a very high probability of rising, and the average first-day increase exceeds 50%.

However, although the overall profitability of new stocks involved in a routine callback is good, there is a very important prerequisite for participating in this speculation, which is to be able to know the insider information in advance whether a certain new stock will be involved in a routine callback. For ordinary new stock investors, this is undoubtedly a high threshold. Therefore, unless there is very reliable firsthand information, participating in speculative routine callbacks may not be a very high winning choice.

The above are the three common speculative strategies in Hong Kong new stock trading. It must be pointed out that speculative operations, due to the lack of new stock fundamentals as a safety margin, require attention to position management and risk control. Taking small bets can be enjoyable, but large bets can be harmful.

Finally, here is a summary of the entire article in one image.