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While Singaporeans have access to mainland companiesÆ IPO right in their home country, the Chinese stocks listed in the Singapore stock exchange are often restricted to small caps, and these stocks are mostly trading at around 10-20 times price earnings ratios û much lower compared with H-shares in Hong Kong.
It is amid this backdrop that Lyxor International Asset Management, a wholly owned subsidiary of Societe Generale, launched its new Lyxor Momentum China IPO Fund to Singaporean investors at the start of this year.
The new fund, which will offered to investors until 20 February, aims to provide investors with exposure to the 20 largest China-domiciled companies under Standard & PoorsÆs IPOX China 20 Index, which tracks 20 newly-listed mainland Chinese companiesÆ stocks outside of China for a maximum of 1,000 days after their debut.
The index, launched in October 2006, delivered a 42% annualized return last year. As of December 21, the index constituents included the Industrial & Commercial Bank of China, PingAn Insurance, Bank of China, Bank of Communications, China Construction Bank Corporation, China Shenhua Energy, Country Garden Holdings, Foxxcon International Holdings, Tencent Holdings, and Belle International Holdings. It is market capitalization-weighted and refreshed weekly.
How big is the IPO mania in Singapore?
ôNot dissimilar to what you have in Hong Kong. Like in most Asian markets, Chinese IPOs will always find favour with the average investor, so interest in terms of product like this will always be there,ö says Malcolm Thomas, director of global equities and derivative solutions at Societe Generale in Singapore.
ôItÆs a matter of whether we are able to offer it in a form that investors can access in friendly and easy way, which is often the issue,ö he adds.
Lipper data shows $2.2 billion of investments exited qualified foreign institutional investor (QFII) funds in China in 2007. But Thomas is optimistic over the outlook for the demand for Chinese funds this year.
ôWhat you saw in 2007 is essentially funds realizing profits, which is what fund managers in general do when they hit profit targets and the upside is reasonable,ö he says.
ôIs it a story thatÆs ending? No. I think the China growth story remains sustainable. I think there will always be a nice and rich pipeline - you are looking at a pipe that is over $100 billion, which is not funny money,ö he adds.
Meanwhile, the Lyxor fund can be leveraged up to 130% in a bullish environment or hold up to 50% in cash during down cycles. Lyxor employs its own proprietary quantitative model when trading on price and momentum.
Thomas says he expects to raise $50 million minimum from this launch, noting the fund has sufficient capacity to handle up to $150 million because of the high liquidity of the underlying constituents. Minimum investments begin at S$5000 ($3,492).
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