We think the market's concerns on China stocks listed in Singapore (S-Chips) – the lack of industry leadership, lower perceived transparency, liquidity constraints and shorter operating history – are well known. If the current strong liquidity environment can be sustained, the S-Chips could play catch up to the China shares listed in Hong Kong. The S-Chips Index has rallied 23% in the past month, but it has still underperformed the HK small caps and China small caps by 29% and 36%, respectively, this year. Valuations of the S-Chips are also lower than for both the HK small caps and the Singapore market.

The Kingboard group's privatization of the Singapore listed Kingboard Copperfoil and Elec & Eltek highlighted a trend we see more in Hong Kong. There are over 30 companies with enough net cash to buy out the minorities (Figure 3). Kingboard's privatization attempts are mainly to streamline its corporate structure. The two holding companies, Kingboard Laminates (which is privatizing Kingboard Copperfoil) and Kingboard Chemicals (which is privatizing Elec & Eltek), could see earnings accretion as well as a one-timegain from negative goodwill. There may be less incentive for other S-Chips, particularly for those with a short listing history.

On the other hand, the current cycle offers S-Chips an opportunity to evaluate their decision to list in Singapore. Poor sell-side coverage, inconsistent investor interest, and low market multiples are negative to capital market access, and could be an obstacle to business growth in the long term. There are significant financing risks in a privatization and market timing risks in a Hong Kong re-listing. On the other hand, the potential re-rating could be rewarding to both the major shareholder and the minority investors.

China food and beverage distributor Want Want (0151.HK) traded on an average historical PER of 11.2X when it was listed in Singapore (Jan 1997 to Aug 2007). The company de-listed in Singapore in September 2007, and it re-listed in Hong Kong in March 2008. Its average PER in Hong Kong was 15.9x. We estimate that the major shareholder's stake in Want Want is currently worth US$3.37bn (51%, share price of HK$3.9 on 6 June), compared to US$1.6bn (54.19%, last traded price US$2.34) when it was listed in Singapore.