Chinese and Hong Kong flags fly as screens show the Hang Seng Index in front of the Exchange Square complex, which houses the Hong Kong Stock Exchange (HKEX), on January 21, 2021 in Hong Kong, China.
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Hong Kong has seen a notable increase in listing activity this year as more Chinese companies turned to the city to raise capital and investors grew more optimistic after Beijing pledged to support the offshore market.
The Hong Kong Stock Exchange recorded an increase in new listings for the first time after three consecutive years of declining transaction values, according to data compiled by Dealogic. This included initial public offerings and further subsequent share sales.
The city’s exchange has raised a total of $10.65 billion in 63 deals this year, a significant increase of more than 80% compared to the $5.89 billion raised in 67 in 2023 – which, according to Dealogic, was the lowest value since 2001.
Another sign that companies and investors are regaining confidence in the Hong Kong market is the fact that the average deal size has almost doubled to $169 million compared to last year.
The number of companies seeking IPOs in Hong Kong began to increase in the second half of this year China Securities Regulatory Commission in April is committed to supporting the Hong Kong market and facilitating more IPOs from leading mainland companies.
Beijing’s increased stimulus package has further sparked corporate interest in raising capital in the offshore city and lured back some foreign capital funds, experts said.
Looking at IPOs alone, Hong Kong is expected to rank fourth globally in terms of funds raised this year. according to KPMGbehind India and the US stock exchanges.
“There is a lot of pent-up demand for capital raising” since 2022, as the city’s economy tried to shake off a pandemic-related downturn, Andy Maynard, managing director and head of equities at China Renaissance, said in an email.
Despite some “signs of life,” Maynard warned that a further pick-up in IPO activity in Hong Kong could only be expected if “we see continued improvement in the onshore economy and geopolitical tensions continue to ease.”
“signs of life”
Listing activities in the Asian financial center for years when geopolitical tensions had subsided and higher interest rates worldwide dampened investors’ interest in participating in stock market trades in Hong Kong and China.
The economic downturn in China and a persistent real estate market crisis also sparked concerns about corporate valuations among issuers and investors.
Investor sentiment has improved this year, particularly for sectors that would benefit from policy support, such as consumer-related companies, said Qing Wang, chairman and chief strategist at Shanghai Chongyang Investment Management.
Midea Group, which sells air conditioners, washing machines, elevators and other consumer goods, secured the city’s award in September largest entry since the beginning of 2021. The Hong Kong-listed shares have risen over 36% compared to the offer price as investors remain hopeful that their position will benefit Beijing’s “Trade-In Program” The aim is to encourage consumers and companies to modernize existing devices and equipment.
There was 90 IPO applications are pending for listing or in progress on November 29, according to the exchange’s website.
While the city could see a more active IPO pipeline in 2025, it is likely to be a “gradual recovery” rather than a “V-shaped” recovery, said John Lee, vice chairman and co-head of Asia country coverage at UBS Global Banks Asia.
Mainland Chinese investors have bought $96.4 billion worth of Hong Kong stocks so far this year, surpassing last year’s total of $42 billion and marking the biggest year since a value buying spree, according to Goldman Sachs of $87 billion in 2020.
“There is also a return of foreign long-only funds into China (and) Hong Kong equities, albeit slowly,” said Perris Lee, head of APAC equity capital markets at Ion Analytics.
“No Santa Claus Rally”
Not all newly listed stocks have performed well. Chinese autonomous driving company Horizon Robotics and bottled water maker China Resources Beverage – the city’s two biggest IPOs this year – saw their shares fall 12% and 11%, respectively, from offer price levels as of Wednesday.
Investors need to see “concrete evidence of the effectiveness of the stimulus measures,” said Shanghai Chongyang’s Wang. He expects sentiment to improve somewhat at the start of the second quarter next year as listed companies begin reporting earnings.
The benchmark Hang Seng Index is heading for its first annual gain after four straight years of declines, up over 16% so far this year.
Hang Seng Index
However, the rally fueled by Beijing’s massive stimulus package in late September has lost some momentum.
Looking ahead, China Renaissance’s Maynard said that while the Hong Kong stock market may have turned the corner, he sees “no prospect of a Christmas rally.” The market remained “trapped and wobbling” as Beijing’s stimulus announcements since September have been disappointing.
