If Medibank has a strong session when it lists today, one of the main reasons is likely to be the need for fund managers to own it just because it’s a big stock.
Apart from index funds that track the performance of say, the ASX 200 index, a lot of active managers can also fall into this camp. They advertise their performance compared to the index. This means they often put limits on how much their portfolio can differ from the index itself.
Private investors and traders who don’t have to do this might keep an eye on Medibank’s smaller rival, NIB Holdings (NHF.ASX). It broke above its 200 day moving average when interest in the Medibank IPO got under way in earnest and then peaked neatly at the old trend line support and 78.6% Fibonacci retracement level at $3.38.
Yesterday NIB sold sharply, returning to the 200 day average, closing at $3.05. Perhaps those hedging the Medibank float were exiting positions.
Depending on your earnings forecast, NIB has traded in a range of about 17.5 to 20.5 times current year earnings in recent months. Yesterday it closed at around 18.5 times. Medibank looks like starting at much higher valuations. At $2.15 it will be worth 22.9 times earnings.
Value hunters, might have a return to the bottom end of NIB’s PE range of 17.5 times on their watch list. This would see the share price back to the 78.6% Fibonacci retracement level around $2.85/$2.90. If Medibank gets really strong in the next few days some investors might think about selling their Medibank allocation and buying NIB. In these circumstances, there may be a chance to return to the Medibank register at better value relative to NIB when things settle down.