Hong Kong Exchanges and Clearing celebrates the twenty fourth anniversary of its itemizing on June 21, 2024.
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BEIJING — The marketplace for preliminary public choices in Hong Kong is about to enhance considerably over the subsequent 5 years, beginning within the second half of this yr, George Chan, world IPO chief at EY, informed CNBC in an interview Wednesday.
“I believe it would take a pair years to return to the height [in 2021] however the pattern is there,” Chan mentioned. “I can see the sunshine on the finish of the tunnel.”
Excessive U.S. rates of interest, regulatory scrutiny, slower financial development and U.S.-China tensions have constrained Greater China IPOs within the final three years.
EY mentioned in a report that whereas the quantity of IPOs and proceeds within the U.S. elevated considerably within the first half of 2024 in comparison with the identical interval a yr in the past, mainland China and Hong Kong noticed a pointy decline in listings.
Lots of the macro tendencies are actually beginning to flip round, which might help extra IPOs in Hong Kong, mentioned Chan, who relies in Shanghai.
“We’re seeing a reversing pattern,” he informed CNBC. “We’re seeing extra of those [U.S. dollar] funds, they’re shifting again to Hong Kong. The principle purpose is that Hong Kong has already factored in these uncertainties.”
The Hang Seng Index is up greater than 5% year-to-date after 4 straight years of decline — which was the worst such dropping streak within the historical past of the index, in response to Wind Info.
“Our HK cap markets crew may be very busy and has a robust pipeline for H2. We anticipate to see many HKSE listings,” Marcia Ellis, world co-chair of personal fairness observe at Morrison Foerster in Hong Kong, mentioned in an electronic mail Wednesday.
Many corporations that have been ready for a list in mainland China’s A share market have determined to modify to 1 in Hong Kong, she mentioned. “Beforehand [China Securities Regulatory Commission] approval was slowing issues down however lately our crew has gotten CSRC approvals fairly shortly.”
In June, China issued new measures to promote venture capital, and authorities spoke publicly about supporting IPOs, particularly in Hong Kong. Traders and analysts mentioned they’re now trying on the velocity of IPO approvals for indicators of a major change.
Chan mentioned one other supportive issue for Hong Kong IPOs is that lots of the corporations listed out there are primarily based in mainland China, the place financial development is “fairly passable.”
He expects client corporations may very well be among the many near-term IPO beneficiaries.
“Because the financial system slowly recovers, lots of people in China are prepared to spend,” he mentioned, noting that was particularly the case in much less developed elements of the nation.
Official national-level information have confirmed that retail gross sales are rising extra slowly in China — up by just 3.7% in Might from a yr in the past versus development of practically 10% or extra in prior years.
Additionally vital for world asset allocation, the U.S. Federal Reserve and different main central banks are pulling again from aggressive rate of interest hikes. Excessive charges have made Treasury bonds a extra enticing funding for a lot of establishments as a substitute of IPOs.
“I’d say if the rate of interest will be additional reduce down, 1% possibly, that will have a major impact on the IPO market,” Chan mentioned.
Hong Kong IPOs raised $1.5 billion in the course of the first half of the yr, a 34% drop from a yr in the past, EY mentioned in a report launched late final month. Again in 2021 and 2020, the Hong Kong Inventory Alternate noticed practically 100 or extra IPOs a yr elevating tens of billions of {dollars}, in response to the report.
As compared, mainland China IPOs raised $4.6 billion within the first six months of 2024 — a drop of 85% from the year-ago interval, in response to EY.
Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Restricted, mentioned throughout a convention final week that thus far this yr, the Hong Kong change has acquired 73 new itemizing purposes — a 50% increase in comparison with the second half of final yr. She is just not associated to EY’s George Chan.
“The pipeline is increase properly,” she mentioned, noting about 110 IPOs in complete are in line for a Hong Kong itemizing. “All we want is a set of fine market situations so these items get to launch and value properly,” she added.
Enhancing post-IPO efficiency
“What we want is a robust pipeline,” EY’s Chan mentioned. “We’d like an investor with the cash to take a position, and we want a great aftermarket efficiency.”
Hong Kong IPO returns are bettering. The typical first-day return of recent listings on the Hong Kong inventory change within the first half of 2024 was 24%, way over the typical of 1% in the identical interval final yr, in response to EY.
“The aftermarket efficiency of Hong Kong IPOs has been doing fairly good in comparison with the previous 5 years,” Chan mentioned. “These items added collectively are projecting an upward pattern for the Hong Kong market [in the] subsequent 5 years.”
Chan mentioned he expects the variety of offers to select up within the second half of 2024.
He mentioned these will probably be medium-sized — between 2 billion Hong Kong {dollars} to five billion Hong Kong {dollars} ($260 million to $640 million) — however added he expects higher market momentum in 2025.
Slowing financial development and geopolitical uncertainty have additionally weighed on early-stage funding into Chinese language startups.
Whole enterprise funding from international buyers into Larger China offers plunged to $19 billion in 2023, down from $67 billion in 2021, in response to Preqin, another belongings analysis agency.
U.S. buyers haven’t participated within the largest offers in recent times, whereas buyers from Larger China have remained concerned, the agency mentioned in a report final month.
U.S. IPO outlook
As for IPOs of China-based corporations within the U.S., EY’s Chan mentioned he expects present scrutiny on the listings to be “short-term,” though data security rules would stay a hurdle.
In early 2023, the China Securities Regulatory Fee formalized new guidelines that require home corporations to adjust to nationwide safety measures and the private information safety regulation earlier than going public abroad. A China-based firm with greater than 1 million users must pass Beijing’s cybersecurity review to checklist abroad.
“As time goes on, when persons are extra accustomed to the Chinese language [securities regulator] approval course of and they’re extra change into comfy with geopolitical tensions, extra of the big corporations … would think about [the] U.S. market as their ultimate vacation spot,” Chan mentioned.
“When the time comes I believe the institutional buyers could be focused on these sizeable Chinese language corporations, as they stunning a lot need to generate income.”
He declined to touch upon particular IPOs, and mentioned sure high-profile itemizing plans are “remoted incidents.”
Chinese language ride-hailing firm Didi, which delisted from New York in 2021, has denied studies it plans to checklist in Hong Kong subsequent yr. Quick-fashion firm Shein, which does most of its manufacturing in China, is trying to list in London following criticism within the U.S., in response to a CNBC report.
