The initial public offering (IPO) market in Hong Kong is anticipated to experience significant improvement over the next five years, starting from the second half of the current year, as per George Chan, the global IPO leader at EY. Despite facing challenges such as high U.S. interest rates, regulatory scrutiny, slower economic growth, and U.S.-China tensions in recent years, the outlook for IPOs in Hong Kong is looking brighter. The shift in macro trends and the current market conditions indicate a positive trajectory for the IPO market in the region.
As highlighted in a recent report by EY, the volume of IPOs and proceeds in the U.S. has seen a significant increase in the first half of 2024 compared to the previous year, while mainland China and Hong Kong witnessed a decline in listings. However, the scenario is gradually changing, with more U.S. dollar funds returning to Hong Kong. The uncertainties previously faced by the market are being factored in, paving the way for a more favorable environment for IPOs in Hong Kong.
According to Marcia Ellis, the global co-chair of the private equity practice at Morrison Foerster in Hong Kong, companies that were planning listings in mainland China’s A share market are now opting for listings in Hong Kong. The approval process by the China Securities Regulatory Commission (CSRC), which previously posed delays, has now become more efficient. The recent measures introduced by China to promote venture capital and support IPOs in Hong Kong have further contributed to this shift.
With the positive momentum building up, many companies based in mainland China are looking towards listing in Hong Kong. Consumer companies are expected to be among the near-term beneficiaries of IPOs in the region, especially as economic growth in China shows signs of improvement. The willingness of Chinese consumers to spend, particularly in less developed regions, presents an opportunity for IPOs to thrive.
The current scenario of high interest rates, prompting institutions to consider Treasury bonds as a more attractive investment option over IPOs, poses a challenge for the IPO market. George Chan noted that a reduction in interest rates could significantly boost the IPO market in Hong Kong. The need for a strong pipeline of interested investors with the financial capacity to invest, along with a positive aftermarket performance, is crucial for the success of IPOs in the region.
Despite a 34% drop in IPO funds raised during the first half of the year compared to the previous year, the Hong Kong Stock Exchange remains optimistic about the future. The increasing number of listing applications and the strong pipeline of about 110 IPOs in line for a Hong Kong listing indicate potential for growth and expansion in the market. The improving returns on Hong Kong IPOs further reinforce the positive outlook for the market in the coming years.
The Hong Kong IPO market is poised for a significant turnaround, with promising opportunities on the horizon. The shifting trends, supportive measures by regulatory bodies, and improving market conditions all point towards a positive trajectory for IPOs in Hong Kong. As the economic landscape evolves and investor confidence returns, the future of IPOs in Hong Kong looks bright and promising.