More foreign companies have switched to Hong Kong bourses, solidifying the city’s position as the leading international fundraising hub in the region, according to PwC.
Despite economic and political uncertainties around the world, PwC expects stable development for the city’s IPO market, and the possibility of some mega-sized IPOs before the end of this year.
Meanwhile, Hong Kong’s IPO market remained active in the first half of 2017, achieving increases in both number of listings and funds raised.
A vibrant market in small-to-medium sized IPOs contributed to more-than-double listings and fund raised on the GEM board.
In the first half of 2017, there were a total of 72 new listings in Hong Kong – an 80% increase on the same period last year. Total funds raised reached HK$53.6 billion, increasing 23% year on year.
There was a stronger performance on the GEM board, which recorded 35 IPOs and HK$ 2.6 billion of total fundraising. This is a significant increase of 133% in number of companies and 136% of funds raised.
There were 37 new listings on the main board within the period, with total funds raised standing at HK$ 51 billion. This is a 48% increase in IPOs and a 20% increase in funds raised.
Companies seeking IPO are mainly from industrial and retail, consumer goods & services industry.
“We saw significant growth in the IPO market in the first half of 2017, comparing year on year,” says Eddie Wong, PwC Hong Kong Capital Markets Service Partner. “We credit this to improving market sentiment and economic conditions, which has also enhanced the quality of Hong Kong’s capital markets.
“The segmentation of IPOs was more evenly distributed – we are pleased to see companies from different industries and geographies all proactively looking for listing opportunities in Hong Kong. Overall pricing and P/E ratios are improving, which indicates that investors are relatively optimistic about the future.”
PwC forecasts that a vibrant IPO market driven by SMEs could result in a record-breaking 160 IPOs over the course of the year. There is still a chance of some mega-sized IPOs before the end of the year, making Hong Kong one of the 3 strongest markets globally, with total fundraising of HK$220 billion.
“The second half of 2017 could be more challenging,” says Benson Wong, Leader of Entrepreneurial Group, PwC Hong Kong. “Market sentiment may be affected by economic and political risk factors around the world. The slow pace of economic recovery, geopolitical issues and the progress of Brexit will continue to dampen companies’ fundraising prospects as well as investors’ intentions.
Slowdown in Mainland China
PwC also expects a slowdown in IPO activity in Mainland China after a spurt of listings in the first half of the year.
“All the above issues and concerns are affecting the Hong Kong IPO market. Luckily, the Chinese economy is still maintaining mid-to-high growth, which is encouraging the development of Chinese companies and increasing demand for fundraising,” notes Wong.
To celebrate the 20th anniversary of the reunification of Hong Kong with China, President Xi Jinping in Hong Kong announces the Bond Connect programme, and witnessed the signing of the framework agreement on the development of the Guangdong-Hong Kong-Macao Greater Bay Area.
PwC believes that these new measures along with the deepening of Mutual market access arrangements over the past two years, and Hong Kong’s special role linking foreign and inland markets, means that the city could play an even more important role in the Mainland’s multi-layered capital markets.
“We have seen a growing number of foreign companies listing in Hong Kong. Besides being a source of funds to support business expansion in Hong Kong and the Mainland, Hong Kong as the region’s financial hub is capable of attracting investors and absorbing funds from all over the world. Such an active, high turnover market helps companies to enhance their appeal and creates easier access to investors from the Mainland and overseas,” says Eddie Wong.
New Board with a Weighted Voting Rights Structure
To strengthen the scale and quality of Hong Kong’s capital markets, HKEx is consulting the market on improvements to the Main Board and GEM, as well as the possibility of a New Board with a Weighted Voting Rights structure. PwC welcomes the bourse’s consultation.
“The proposal clearly defines the functionality of the different boards. It addresses the funding needs of different kinds of companies and helps them to source and match appropriate investors. It also clears the obstacles to the development of the city’s capital markets.
“These suggestions could help attract a certain amount of Startups, “new-economy” companies and Chinese companies listed overseas, to relocate their listing to Hong Kong. We encourage all market stakeholders to share their views and insights proactively, in order to enhance the competitiveness of Hong Kong as one of the global financial hubs,” says Benson Wong.
Looking at the Mainland, the momentum of IPO activity has remained strong since the second half of 2016, leading to remarkable results in the first half of 2017. There were a total of 246 new listings, with total funds raised reached RMB 125.5 billion – both increase of over 300% year on year.
However, in response to the overall scale and capacity of the A-share market, the quality of listed companies, investor risk and related factors, the speed of IPO approvals has been slowed since late May.
Separately, the MSCI has announced the inclusion of A-shares in its Emerging Markets Index from June 2018. To conclude, PwC maintains its forecast of 320 to 350 new listings for the full year 2017.