Hong Kong’s IPO Market Set for Significant Improvement, Says EY

Marcia Ellis, global co-chair of private equity practice at Morrison Foerster in Hong Kong, mentioned that their Hong Kong capital markets team is very active and has a robust pipeline for the second half of the year, anticipating numerous listings on the Hong Kong Stock Exchange.

The market for initial public offerings (IPOs) in Hong Kong is poised for substantial growth over the next five years, according to George Chan, global IPO leader at EY. Chan noted that a 1% reduction in interest rates could greatly benefit the IPO market.

Marcia Ellis from Morrison Foerster mentioned a strong pipeline for Hong Kong Stock Exchange listings in the second half of the year.

Over the past three years, Greater China IPOs have been hindered by high U.S. interest rates, regulatory challenges, slower economic growth, and U.S.-China tensions. Despite these obstacles, Chan sees positive changes that could boost IPO activity in Hong Kong, driven by a returning trend of U.S. dollar funds moving back to the region.

The Hang Seng Index has risen over 5% year-to-date, recovering from four years of decline. Companies initially aiming for mainland China’s A share market are now considering Hong Kong due to faster regulatory approvals. In June, China introduced measures to support venture capital and IPOs, particularly in Hong Kong.

Chan highlighted that many companies listed in Hong Kong are based in mainland China, where economic growth remains stable. He expects consumer companies to be among the early beneficiaries of the recovering IPO market.

Retail sales in China have slowed, growing by just 3.7% in May compared to the previous year. However, global central banks are easing aggressive rate hikes, potentially making IPOs more attractive.

Hong Kong IPOs raised $1.5 billion in the first half of the year, a 34% drop from the previous year. Meanwhile, mainland China IPOs raised $4.6 billion, an 85% decline. Bonnie Chan from Hong Kong Exchanges and Clearing Limited reported a 50% increase in new listing applications this year, with about 110 IPOs in the pipeline.

EY's Chan emphasized the need for a strong pipeline, interested investors, and good aftermarket performance for IPOs. Hong Kong IPO returns are improving, with new listings averaging a 24% first-day return in 2024, compared to 1% last year. He anticipates an increase in deals in the latter half of 2024, with better market momentum expected in 2025.

Venture funding from foreign investors into Greater China has significantly decreased. However, Chan believes that scrutiny on U.S. IPOs of China-based companies is temporary, despite ongoing data security challenges.

New rules from the China Securities Regulatory Commission require compliance with national security measures before going public overseas. Chan is optimistic that as familiarity with these regulations grows, more large Chinese companies will consider the U.S. market.

While Chan refrained from commenting on specific IPOs, he noted that high-profile listing plans are isolated incidents. Companies like Didi and Shein are considering future listings in Hong Kong and London, respectively.

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