Hong Kong Exchanges and Clearing celebrates the 24th anniversary of its listing on June 21, 2024.
China News Service | China News Service | Getty Images
BEIJING – Hong Kong’s IPO market will improve significantly over the next five years, starting in the second half of this year, George Chan, global IPO head at EY, said in an interview with CNBC on Wednesday.
“I think it will take a few years before we reach the peak again [in 2021] “But the trend is there,” Chan said. “I see the light at the end of the tunnel.”
High U.S. interest rates, regulatory controls, slower economic growth and U.S.-China tensions have constrained IPOs in Greater China over the past three years.
EY said in a report that U.S. IPO volume and proceeds increased significantly in the first half of 2024 compared to the same period last year, while mainland China and Hong Kong saw a sharp decline in listings.
Many of the macroeconomic trends are now starting to reverse, which could support more IPOs in Hong Kong, said Chan, who is based in Shanghai.
“We are seeing a reverse trend,” he told CNBC. “We’re seeing more of it [U.S. dollar] Funds, they are moving back to Hong Kong. The main reason is that Hong Kong has already taken these uncertainties into account.”
The Hang Seng Index is up more than 5% year-to-date after four straight years of declines – in what Wind Information said was the worst such losing streak in the index’s history.
Stock chart iconStock chart icon
“Our HK Cap Markets team is very busy and has a strong pipeline for the second half of the year. We expect there will be many HKSE listings,” Marcia Ellis, global co-chair of the private equity practice at Morrison Foerster in Hong Kong, said in an email on Wednesday.
Many companies that were waiting for a listing on mainland China’s A-share market have decided to switch to one in Hong Kong, she said. “Previously [China Securities Regulatory Commission] Approval has slowed things down, but recently our team has been getting CSRC approvals pretty quickly.”
In June, China enacted new measures to encourage venture capital and authorities spoke publicly about supporting IPOs, particularly in Hong Kong. Investors and analysts said they are now watching the pace of IPO approvals for signs of a significant change.
Chan said another supporting factor for IPOs in Hong Kong is that many of the companies listed on the market are based in mainland China, where economic growth is “quite satisfactory.”
He believes that consumer companies could be among the short-term beneficiaries of the IPO.
“As the economy slowly recovers, many people in China are willing to spend money,” he said, noting that this was particularly the case in less developed parts of the country.
Official data at the national level has shown that retail sales in China are growing more slowly – rising just 3.7% year-on-year in May, compared with growth of almost 10% or more in previous years.
Also important for global asset allocation is that the US Federal Reserve and other major central banks are refraining from aggressively raising interest rates. The high interest rates make government bonds a more attractive investment than IPOs for many institutions.
“I would say if the interest rate could be lowered further, perhaps by 1%, it would have a significant impact on the IPO market,” Chan said.
IPOs in Hong Kong raised $1.5 billion in the first half of the year, down 34% from a year earlier, EY said in a report released late last month. According to the report, in 2021 and 2020, the Hong Kong Stock Exchange saw nearly 100 or more IPOs per year, raising tens of billions of dollars.
By comparison, IPOs in mainland China raised $4.6 billion in the first six months of 2024 – an 85% decline from the same period last year, according to EY.
Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said during a conference last week that the Hong Kong bourse had received 73 new listing applications so far this year – a 50% increase compared to the second half of last year. She is not related to George Chan of EY.
“The pipeline is building well,” she said, noting that a total of about 110 IPOs are lined up for listing in Hong Kong. “All we need is good market conditions for these things to come to market and fetch good prices,” she added.
Improving post-IPO performance
“What we need is a strong pipeline,” said EY’s Chan. “We need an interested investor with the money to invest and we need good aftermarket performance.”
Hong Kong IPO returns are improving. According to EY, the average first-day return of new listings on the Hong Kong stock exchange was 24% in the first half of 2024, well above the average of 1% in the same period last year.
“The aftermarket performance of Hong Kong IPOs has been quite good compared to the last five years,” Chan said. “All things considered, it suggests an upward trend for the Hong Kong market [in the] next 5 years.”
Chan said he expects the number of deals to increase in the second half of 2024.
He said these are likely to be medium-sized – between HK$2 billion and HK$5 billion ($260 million to $640 million) – but added that he expects better market dynamics in 2025.
Slowing economic growth and geopolitical uncertainty have also weighed on early-stage investments in Chinese startups.
Total venture capital funding from foreign investors in Greater China deals fell from $67 billion in 2021 to $19 billion in 2023, according to Preqin, an alternative assets research firm.
U.S. investors have not participated in the largest deals in recent years, while investors from Greater China remain involved, the company said in a report last month.
Outlook for the US IPO
As for U.S. IPOs of China-based companies, EY’s Chan said he expects the current review of IPOs to be “temporary,” although privacy regulations will continue to pose a hurdle.
In early 2023, China’s securities regulator issued new rules requiring domestic companies to comply with national security measures and the personal data protection law before listing abroad. A China-based company with more than 1 million users must pass Beijing’s cybersecurity audit to be listed abroad.
“As time goes on, people become more and more familiar with the Chinese [securities regulator] Approval processes and they have become more comfortable with geopolitical tensions, which more large companies…would consider [the] “The U.S. market is their ultimate goal,” Chan said.
“When the time comes, I think the institutional investors will be interested in these large Chinese companies because they essentially want to make money.”
He declined to comment on specific IPOs, saying certain high-profile IPO plans were “isolated cases.”
Chinese ride-hailing company Didi, which was delisted from New York in 2021, has denied reports that it plans to list in Hong Kong next year. Fast fashion company Shein, which does most of its production in China, is seeking to go public in London following criticism in the United States, according to a CNBC report.
Source link
2024-07-04 00:07:36
www.cnbc.com
