10 Jan 2017
Global IPO Leader
Uncertainties such as the slow global economic recovery, Brexit, the presidential elections in the United States and rising interest rates led to a less-than-ideal worldwide fundraising climate, professional services firm PwC reports. However, the outperformance of the Hong Kong IPO market showed the robust position of the city’s financial markets, with enterprises still viewing Hong Kong as their top fundraising platform choice in Asia and worldwide. Shanghai and New York placed second and third respectively.
Further improvements to Stock Connect, a cross-boundary investment channel that connects the Hong Kong Stock Exchange with the Chinese mainland exchanges of Shanghai (launched in November 2014) and Shenzhen (launched in December 2016), strengthened multi-level capital markets and improved investor sentiment in both jurisdictions, according to PwC.
The firm expects the momentum to continue into 2017. It forecasts total fundraising in Hong Kong’s IPO market to reach HK$220 billion this year, securing the city’s place among the top three globally.
| Building on a Solid Foundation|
|The December 2016 launch of the Shenzhen Connect builds on the solid foundation of the Shanghai-Hong Kong Stock Connect programme launched in 2014. The expanded list of eligible stocks offers international and Hong Kong investors direct access to many companies traded in the Chinese mainland for the first time. There are also more choices for mainland investors, with 100 small cap stocks listed in Hong Kong now available through Shenzhen Connect. |
Hong Kong Exchanges and Clearing Ltd (HKEX) Chairman CK Chow said the initiative takes the two jurisdictions’ mutual market access to a new horizon by opening another mainland market for international and Hong Kong investors. “Under 'one country, two systems', Hong Kong is in a unique position to build connectivity with the mainland markets and to facilitate the gradual and orderly opening of the mainland's capital account," he said.
HKEX Chief Executive Charles Li added that the significance of Shenzhen Connect is multi-fold.
"Shenzhen Connect proves the Connect programme is not only flexible and scalable, but also an important part of Hong Kong's market infrastructure and our strategy for the long term," Mr Li said. "By broadening mutual market access, overseas investors can make use of Hong Kong as a convenient access point to the Chinese mainland, while mainland investors can use Hong Kong as their first stop as they begin to diversify their assets beyond mainland China’s borders. By playing this dual role, Hong Kong will grow as a wealth management centre alongside our traditional role as a global capital formation centre."
SMEs Rally to List
The year-end wrap-up reveals a total of 126 new listings in 2016, of which 81 were Main Board listings. These mainly comprised industrial companies, followed by retail, consumer goods and services, and financial services companies. GEM listings totalled 45, the most in Hong Kong since 2002. The number of GEM IPOs is expected to grow further in 2017.
In addition, PwC noted that more SMEs were listed in Hong Kong in 2016, with the trend expected to continue into 2017.
IPOs of financial services companies continued to lead the race in 2016, making up 69 per cent of the HK$194.8 billion in total funds raised on the Main Board. There were eight new listings of financial services companies with a fundraising scale of more than HK$5 billion.
According to PwC, this reflects the fact that many mainland banks and financial institutions continued choosing Hong Kong to raise capital and meet future development needs. It adds that financial services are expected to continue to lead through the whole of 2017, with the chance of seeing four to five mega-IPOs, each raising more than HK$10 billion.
Eddie Wong, Partner of Capital Markets Services, PwC Hong Kong, explained that Hong Kong’s IPO market was resilient to, though not immune from recent global events.
“Uncertainty in the global economy in 2016 dragged down overall fundraising,” said Mr Wong. “This, combined with volatility in mainland China stock markets earlier in the year and a slowdown in China’s economic growth, prompted investors and companies planning to list in Hong Kong to adopt a wait-and-see attitude, intensifying the risk-averse sentiment in the market and impacting the investment appetite for and pricing of new listings.”
All of these factors, Mr Wong explained, led to a drop in the amount of funds raised by IPOs in Hong Kong from the previous year. However, he believes mainland demand remains for Hong Kong listings. “Hong Kong’s IPO market is still more active than other exchanges, enabling it to maintain its global leading position.”
PwC predicts that 130 IPOs will launch in Hong Kong in 2017, given that there are already 126 applications from companies intending to list on the Hong Kong Main Board and GEM – an increase of more than 40 per cent over the corresponding period in 2015.
Best Listing Platform
Benson Wong, Entrepreneur Group Leader, PwC Hong Kong, expects that global markets will remain volatile in 2017, although the market investment climate should improve gradually.
“Market consensus shows that China’s economy will maintain steady growth, while government measures adopted in mainland China to promote development of the services industry and urbanisation will bring plenty of business opportunities to enterprises in mainland China and Hong Kong, boosting fundraising demand,” Mr Wong said.
Hong Kong’s capital markets would be the best platform for enterprise listings and further fundraising, he added. “We anticipate more buoyancy in Hong Kong IPO listings in the second half of 2017, especially in Q4, traditionally the peak IPO season.”
The overall performance of mainland IPO markets was stable in the second half of 2016, and PwC expects to see 320 to 350 new listings in its A-share markets, and total funds raised at Rmb220 billion to Rmb250 billion, for the year.
Benson Wong credits years of development and preparation – from the “Hong Kong Stock Through Train” put forward in 2007 to today’s Shanghai-Hong Kong and Shenzhen-Hong Kong Stock connect initiatives – now bearing results.
“Stock Connect has made a huge step toward the opening-up of China’s capital market and renminbi internationalisation,” he said. “We expect that the launch of the Shenzhen-Hong Kong Stock Connect at the end of 2016 will further attract various types of investors. Coupled with more small- and medium-cap growth stocks listed in Shenzhen, including stocks of new economy and high-tech companies with significant potential, this will help the Hong Kong stock market expand its investment base and improve investor sentiment. This will further reinforce Hong Kong’s important role in the multi-level capital markets of mainland China as well as its strategic position as an international fundraising platform with the backing of the mainland.”
Deloitte agreed that Hong Kong has a solid IPO pipeline in place. It expects that A-share IPO activities will accelerate to enable the long queue of entrants to gain access to the capital market “as long as the market environment is supportive.”
"Despite many worrying developments, in particular the weakening Chinese economy earlier last year,” noted Edward Au, co-leader, National Public Offering Group, Deloitte China, “lingering uncertainty over the US interest rate hike timetable and Brexit, Hong Kong can still support many large offerings boosted by optimistic news, such as the European Central Bank's quantitative easing measure, improved Chinese economic performance over the course of the year, and the new Shenzhen-Hong Kong Stock Connect."