An IPO, or initial public offering, is when a company first sells shares to the public. You can do this through a stock exchange, and in Hong Kong, the IPO market is booming. In 2017 alone, there were over 60 IPOs that raised a total of US$32 billion.
Before investing in an IPO, you need to know a few things. First of all, what is the company planning to do with the money from the IPO? This information will give you an idea of how well it is likely to do in the future. There are also some risks involved in investing in an IPO, so make sure you understand these before making any decisions.
Timing is imperative when it comes to investing in an IPO. You need to ensure you buy shares at the right time, as they can sometimes drop in value shortly after the IPO.
When is the IPO market open?
The IPO market in Hong Kong is open all year round, except for a few days around Chinese New Year, which means that there are always opportunities to invest, but you also need to be aware of the risks involved. Companies time their IPOs for maximum market interest but they can take place on any trading day, normally being announced officially a few days before the event. Rumours of IPOs often circulate for months or even years before they are officially announced.
Risks of investing in an IPO
The company may not be able to live up to the hype
When a company goes public, there is frequently a lot of hype surrounding it, and this can sometimes lead to unrealistic expectations, which the company may then not be able to meet, causing the share price to drop soon after the IPO.
The share price may be volatile
IPOs can be pretty volatile, meaning the share price may go up and down in the first few months. This can make it challenging to make money from investing in an IPO.
You may not be able to sell your shares
If you invest in an IPO, you may not be able to sell your shares for a while because there is usually a lock-up period when insiders (such as the company’s employees) are not allowed to sell their shares. It can be up to 12 months after the IPO. For investors buying into an IPO after the official launch this is not usually the case.
What are the benefits of investing in an IPO?
You can get in on the ground floor
If you invest in an IPO, you’re buying shares in a company just recently listed on public markets. Therefore, you have the potential to make a lot of money if the company does well.
You can help a company grow
By investing in an IPO, you’re helping a company raise money so that it can grow. If you believe in the company, it can be a great way to support the business.
What do traders need to invest in IPOs?
A good understanding of the company’s business model
Traders need to understand the company’s business model well to make an informed decision about whether or not to invest. Look at this site for more information.
A clear idea of what the company plans to do with the money raised
It is also essential to clearly understand what the company plans to do with the money raised from the IPO. It will give traders an idea of how well the company will do in the future.
An awareness of the risks involved
Traders need to know what risks are involved in investing in an IPO. The risks include the volatility of the share price and the possibility that they may not be able to sell their shares for a while.
A diversified portfolio
It is also essential to have a diversified portfolio so you are not too exposed to the risks of investing in an IPO. Therefore, investing in a variety of different companies and asset classes.
A long-term view
Investing in an IPO is a long-term investment. Traders must be patient and have a long-term view to make money from investing in IPOs.
A good research team
It is vital to have a good research team to help you understand the companies you are thinking of investing in. This team should be able to provide you with an analysis of the financial statements and give you an idea of the company’s prospects.
