Strong interest from investors and abundant liquidity in the capital market have pushed Hong Kong's IPO activities for the first half of 2014 to a decade high in terms of number of newly listed companies.
Given the current market situation, PwC expects the city could remain as one of the top three global IPO markets in 2014.
The first half of the year saw 52 new listings in Hong Kong, with HK$81.2 billion of total fundraising.
Compared to the first half of 2013, that’s a more-than-double increase in both companies listed and total fundraising, cementing Hong Kong’s reputation as an attractive listing destination.
The momentum from the last quarter of 2013 continued through to the first half of 2014, with strong economic fundamentals, which facilitated successful listings of companies.
In addition, market participants are still adapting to new policies resulting from the resumption of the Chinese IPO market. As a result, some Chinese companies are switching to Hong Kong in order to reach out to global investors and funds.
"Fundraising activities in Hong Kong remain vibrant in the first half of 2014," says PwC Hong Kong Assurance Partner Benson Wong. "At the same time, uncertainties in the global economy and geopolitical risks saw some adjustments in pricing.
However, the total number of new listed companies and total size of fundraising are proof of the strong liquidity in the market liquidity. Investors’ interests in IPOs also remain strong."
In the first half of 2014, retail and consumer goods contributed to the majority of new listings on the Main Board, followed by financial services, energy and mining-related, and IT-related companies.
PwC expects an estimated 110 IPOs with total fundraising of HK$180 billion in 2014, a revised forecast from HK$230 billion earlier this year, which took into account some expected large-scale IPOs in the first half.
Nonetheless, Hong Kong is expected to remain as one of the top three destinations for fundraising globally.
Strong interest from SMEs
According to Edmond Chan, PwC Hong Kong Capital Market Services Group Partner, a lot of companies are still interested, and are in fact, preparing for a Hong Kong listing.
The majority of the listing candidates will be the SMEs.
"Traditionally, IPO activities are more active in the second half of the year. Given the stable growth in China’s economy with improving fundamentals, we expect to see more IPO activities, especially mega-sized IPOs," says Chan.
Retail and consumer goods, telecommunications and internet-related, industrial, and financial services are the industries that are expected to go for listings. There will be some IPOs with funds raised exceeding HK$10 billion in the second half.
Looking at the Mainland, since the resumption of IPO activities, 52 companies were listed in the Shanghai and Shenzhen stock markets in the first half of 2014, with RMB 35.2 billion of total fundraising, coupled with relatively reasonable P/E ratio.
PwC expects the Chinese IPO market will rebound in the second half of the year when financial reform deepens and market sentiment improves.
PwC estimates 150 IPOs with total fundraising of between RMB 1,000 to 1,500 billion in 2014, which will be the same as the Hong Kong market in terms of fundraising.
"In view of the current situation, the Chinese market is not expected to have any mega-size fundraising activities in the short period of time," says Frank Lyn, PwC China and Hong Kong Markets Leader.
The Chinese regulators earlier announced the pilot programme for the establishment of a mutual stock market access between Mainland China and Hong Kong.
PwC expects the "Shanghai-Hong Kong Stock Connect“, which will be launched in the fourth quarter, will provide a morale boost for the market.
Under the programme, Mainland investors will be allowed to trade Hong Kong stocks and it could also attract more Mainland companies to list in Hong Kong as H-shares.
PwC also welcomes the recent report released by the Financial Services Development Council (FSDC) about positioning Hong Kong as an international IPO centre.