On June 21, 2024, Hong Kong Exchanges and Clearing celebrated its 24th listing anniversary, amid growing optimism about the future of the city’s IPO market.
In an interview with CNBC, George Chan, global head of IPOs at EY, expressed confidence that the Hong Kong initial public offering (IPO) market is set to see substantial improvement over the next five years, starting in the second half of this year.
Chan noted that while it may take a few years to reach the peak levels seen in 2021, the trend is clearly positive. “I see light at the end of the tunnel,” he said.
Over the past three years, factors such as high interest rates in the United States, increased regulatory scrutiny, slowing economic growth, and geopolitical tensions between the United States and China have dampened IPO activity in Greater China.
A recent EY report found that while US IPO volumes and proceeds increased in the first half of 2024 compared to the same period the previous year, mainland China and Hong Kong saw significant declines in listings.
Chan, who is based in Shanghai, noted that many macroeconomic trends are starting to reverse, potentially encouraging more IPOs in Hong Kong. He cited an increase in U.S. dollar funds returning to Hong Kong, attributing it to the city already factoring in various uncertainties.
According to Wind Information, the Hang Seng Index has risen more than 5% since the beginning of the year, recovering from a four-year decline, the longest losing streak in its history.
Marcia Ellis, global co-chair of Morrison Foerster’s private equity practice in Hong Kong, mentioned in an email that their Hong Kong Capital Markets team is very busy, with a strong pipeline expected in the second half of the year. She said many companies that were initially targeting mainland China’s A-share market are now opting for Hong Kong due to faster approvals from the China Securities Regulatory Commission (CSRC).
In June, China introduced new measures to promote venture capital and publicly backed IPOs, particularly in Hong Kong. Investors and analysts are watching the speed of IPO approvals for signs of significant change.
Chan noted that many companies listed on the Hong Kong market are based in mainland China, where economic growth remains strong. Consumer goods companies are expected to benefit in the short term as the economy recovers and consumer spending increases, especially in less developed areas.
Despite slower retail sales growth in China, Chan highlighted the potential impact of lower interest rates on the IPO market. He suggested that a further 1% reduction in interest rates could significantly boost IPO activity.
According to EY, Hong Kong IPOs raised $1.5 billion in the first half of the year, down 34% from the previous year. In contrast, IPOs in mainland China raised $4.6 billion in the same period, down 85% from the previous year.
Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, revealed at a recent conference that the Hong Kong Stock Exchange has received 73 new listing applications this year, up 50% from the second half of last year. She indicated that about 110 IPOs are in the pipeline, pending favorable market conditions.
EY’s Chan stressed the importance of a strong pipeline and investor appetite for successful IPOs. He noted that first-day returns for new listings on the Hong Kong stock exchange averaged 24% in the first half of 2024, significantly higher than the average of 1% in the same period last year.
Looking ahead, Chan expects the number of deals to increase in the second half of 2024, mostly in the mid-range of HK$2-5 billion ($260 million to $640 million). He expects the market to see better momentum in 2025.
Geopolitical uncertainty and slowing economic growth have also affected early-stage investment in Chinese startups. Total venture funding from foreign investors in Greater China is expected to fall to $19 billion in 2023 from $67 billion in 2021, according to Preqin, a research firm specializing in alternative assets.
As for Chinese companies listing in the U.S., Chan believes that current listing controls are temporary, although data security regulations will continue to pose challenges. He expects that as familiarity with the Chinese regulatory process increases and geopolitical tensions ease, more large Chinese companies will consider the U.S. market as a viable option.
Chan declined to comment on specific IPOs, but addressed high-profile listing plans as isolated incidents. For example, Chinese ride-hailing company Didi, which delisted from New York in 2021, has denied plans to list in Hong Kong next year. Meanwhile, fast-fashion company Shein is reportedly looking to list in London after criticism in the United States.