On June 21, 2024, Hong Kong Exchanges and Clearing (HKEX) celebrates its 24th anniversary since its listing. In the last three years, Greater China Initial Public Offerings (IPOs) have been constrained due to high U.S. interest rates, regulatory scrutiny, slower economic growth, and U.S.-China tensions. However, many of these macro trends are now starting to turn around, which can support more IPOs in Hong Kong.
According to Chan, who is based in Shanghai, there is a reversing trend, and more U.S. dollar funds are moving back to Hong Kong. The reason for this shift is that Hong Kong has already factored in uncertainties. The Hang Seng Index is up more than 5% year-to-date after four straight years of decline, which was the worst such losing streak in the history of the index.
Marcia Ellis, global co-chair of private equity practice at Morrison Foerster in Hong Kong, said that the HKEX’s cap markets team is very busy and has a strong pipeline for the second half of the year. Many companies that were waiting for a listing in mainland China’s A share market have decided to switch to one in Hong Kong.
Chan expects consumer companies to be among the near-term IPO beneficiaries as the economy slowly recovers, and people in China are willing to spend, especially in less developed parts of the country. However, official national-level data have shown that retail sales are growing more slowly in China.
Another supportive factor for Hong Kong IPOs is that many of the companies listed in the market are based in mainland China, where economic growth is “quite satisfactory.” The U.S. Federal Reserve and other major central banks are also pulling back from aggressive interest rate hikes, making Treasury bonds a more attractive investment for many institutions instead of IPOs.
In June, China issued new measures to promote venture capital, and authorities spoke publicly about supporting IPOs, especially in Hong Kong. Investors and analysts are now looking at the speed of IPO approvals for signs of a significant change.
Hong Kong IPOs raised $1.5 billion during the first half of the year, a 34% drop from a year ago. However, the Hong Kong Stock Exchange saw nearly 100 or more IPOs a year raising tens of billions of dollars in 2021 and 2020. In comparison, mainland China IPOs raised $4.6 billion in the first six months of 2024, a drop of 85% from the year-ago period.
Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said that so far this year, the Hong Kong exchange has received 73 new listing applications, a 50% increase compared to the second half of last year. She expects the number of deals to pick up in the second half of 2024, with medium-sized IPOs between 2 billion Hong Kong dollars to 5 billion Hong Kong dollars ($260 million to $640 million). Better market momentum is expected in 2025.
Slowing economic growth and geopolitical uncertainty have also weighed on early-stage investment into Chinese startups. Total venture funding from foreign investors into Greater China deals plunged to $19 billion in 2023, down from $67 billion in 2021. U.S. investors have not participated in the largest deals in recent years, while investors from Greater China have remained involved.
As for IPOs of China-based companies in the U.S., Chan expects current scrutiny on the listings to be “temporary,” although data security rules would remain a hurdle. In early 2023, the China Securities Regulatory Commission formalized new rules that require domestic companies to comply with national security measures and the personal data protection law before going public overseas. A China-based company with more than 1 million users must pass Beijing’s cybersecurity review to list overseas.
Chan believes that as time goes on, when people are more familiar with the Chinese securities regulator approval process and they are more comfortable with geopolitical tensions, more of the large companies would consider the U.S. market as their final destination. Institutional investors would be interested in these sizeable Chinese companies as they want to make money. Chan declined to comment on specific IPOs, and said certain high-profile listing plans are “isolated incidents.” Chinese ride-hailing company Didi, which delisted from New York in 2021, has denied reports it plans to list in Hong Kong next year. Fast-fashion company Shein, which does most of its manufacturing in China, is trying to list in London following criticism in the U.S.
