In 2016, Hong Kong led the world in terms of amount of funds raised by IPOs, leaving Shanghai and New York a distant second and third respectively.
Uncertainties such as the slow global economic recovery, Brexit, the US presidential election and rising interest rates led to a less-than-ideal worldwide fundraising climate. However, the outperformance of the Hong Kong IPO market showed the robust position of the territory’s financial markets, with enterprises still viewing it as their first choice of fundraising platform in Asia and even worldwide.
PwC is optimistic about Hong Kong’s IPO market in 2017, and expects the total fundraising amount to reach HK$220 billion, meaning that it may stay among the top three globally.
New listings in 2016
There were a total of 126 new listings in 2016, of which 81 were Main Board listings. These mostly comprised industrial companies, followed by retail, consumer goods & services and financial services companies. 45 were GEM listings, the biggest number of GEM IPOs in Hong Kong since 2002.
It is expected that the momentum of GEM IPOs will extend into 2017. In addition, PwC has noted that more and more SMEs were listed in Hong Kong in 2016, and it is expected that this trend will continue into 2017 as well.
Total funds raised by IPOs in 2016 reached HK$194.8 billion, marking a decline of 26% from the previous year. IPOs of financial service companies continued to lead the race, making up 69% of total funds raised on the Main Board.
There were 8 new listings of financial services companies with a fundraising scale of over HK$5 billion. This reflects the fact that many mainland banks and financial institutions continued to actively pursue listing in Hong Kong in order to raise capital and meet future development needs.
Financial services are expected to continue to lead through the whole of 2017, with the chance of seeing 4 to 5 mega-IPOs each raising over HK$10 billion.
“Uncertainty in the global economy in 2016 dragged down overall fundraising. This, combined with volatility in mainland China stock markets earlier this 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,” says Eddie Wong, Partner of Capital Markets Services, PwC Hong Kong.
“All of these factors have led to a drop in the amount of funds raised by IPOs in Hong Kong from the previous year. However, there remains demand from mainland companies for listings in Hong Kong. Hong Kong’s IPO market is still more active than other exchanges, enabling it to maintain its global leading position.”
PwC predicts 130 IPOs 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, a sharp increase of over 40% over the corresponding period in 2015.
PwC remains optimistic about the performance of the Hong Kong IPO market in 2017, and estimates that total funds raised are likely to reach HK$220 billion, meaning that it may stay among the top three globally. But this depends on whether mainland China speeds up the IPO approval process and the performance of the US IPO market in 2017.
“We expect that global markets will remain volatile in 2017, with major factors including the economic policies and pace of interest rate hikes of the new US government, whether the Brexit plan will be initiated, post-referendum political trends in Italy, and economic recovery and quantitative easing policy in European countries,” says Benson Wong, Entrepreneur Group Leader, PwC Hong Kong.
“However, as variables in the macro-economic environment are resolved, and the risk-off sentiment among global investors cools down, the market investment climate is expected to improve gradually.
“Market consensus shows that China’s economy will maintain a 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. Hong Kong’s capital markets would be the best platform for enterprise listings and further fundraising.”
PwC anticipates more buoyancy in Hong Kong IPO listings in the second half of 2017, especially in Q4, traditionally the peak IPO season.
Looking at mainland markets, due to global instability and the suspension and resumption of IPOs in 2015, the A-share market was still in recovery in the first half of 2016, resulting in a moderate increase in terms of IPO volume.
Overall market performance was stable in the second half of 2016. This accelerated IPO approvals and the momentum is expected to continue.
PwC expects to see 320 to 350 new listings in the A-share markets, and total funds raised at RMB220 to 250 billion for full year 2017.
“From the ‘Hong Kong Stock Through Train’ put forward in 2007 to today’s Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connects, there have been years of development and preparation.
“Stock Connect has made a huge step toward the opening-up of China’s capital market and RMB internationalisation. We expect that the launch of 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,” says Benson Wong.