The market for initial public offerings in Hong Kong is expected to see significant improvements over the next five years, especially starting in the second half of this year, according to George Chan, 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 trend is now pointing towards a positive direction. According to Chan, it may take a couple of years to reach the peak levels seen in 2021, but the light at the end of the tunnel is visible, signaling a positive shift in the market sentiment.
The volume of IPOs and proceeds in the U.S. has been increasing significantly, while mainland China and Hong Kong experienced a decline in listings in the first half of 2024. However, many macro trends are now reversing, indicating a supportive environment for more IPOs in Hong Kong. Factors such as high U.S. interest rates, regulatory uncertainties, and economic slowdown are now turning around, prompting a renewed interest in Hong Kong as a destination for IPOs. The Hang Seng Index is already showing signs of improvement, up more than 5% year-to-date after a four-year decline, the worst losing streak in its history.
Shift Towards Hong Kong Listings
Many companies that were originally planning listings in mainland China’s A-share market have now switched to Hong Kong listings due to faster approvals and more favorable conditions. Recent measures introduced in China to promote venture capital and support IPOs, especially in Hong Kong, have further boosted investor confidence. Companies listed in the Hong Kong market, many of them based in mainland China, are expected to benefit from the satisfactory economic growth in the region. Consumer companies are particularly singled out as potential IPO beneficiaries in the near term, as consumer spending is on the rise, especially in less developed parts of the country.
The average first-day return of new listings on the Hong Kong stock exchange in the first half of 2024 was an impressive 24%, a significant improvement from the previous year. According to EY’s Chan, the aftermarket performance of Hong Kong IPOs has been strong, indicating a positive trend in the market. The current pipeline for Hong Kong listings looks promising, with around 110 IPOs in line for listing. All that is needed are favorable market conditions, interested investors with capital to invest, and good aftermarket performance to drive the success of these IPOs.
Despite challenges such as slowing economic growth and geopolitical uncertainties impacting early-stage investments in Chinese startups, there is optimism about the future of IPOs in both Hong Kong and mainland China. Many companies are expected to consider Hong Kong as a preferred destination for listings, especially as market conditions improve and investor interest grows. The number of deals is expected to pick up in the second half of 2024, with a focus on medium-sized deals. Overall, the outlook for the Hong Kong IPO market in the next five years appears positive, signaling a potential upward trend in the market.
The future of initial public offerings in Hong Kong looks promising, with positive macroeconomic trends, shifting investor sentiment, and improving market conditions driving increased IPO activity. Despite challenges in the global economy and geopolitical landscape, Hong Kong’s position as a leading financial hub in Asia is expected to attract more companies seeking to go public. With a strong pipeline of listings, growing investor interest, and favorable performance of IPOs, the outlook for the Hong Kong IPO market over the next five years is optimistic.