The market for initial public offerings (IPOs) in Hong Kong is expected to see significant improvement over the next five years, with the turnaround beginning in the second half of this year. George Chan, global IPO leader at EY, expressed optimism about the future of the Hong Kong IPO market, citing positive trends and a promising outlook. Factors such as high U.S. interest rates, regulatory scrutiny, slower economic growth, and U.S.-China tensions have posed challenges to Greater China IPOs in recent years. However, Chan highlighted that many of these macro trends are starting to reverse, setting the stage for a potential increase in IPO activity in Hong Kong.
Recent Developments and Shifts
According to EY’s report, the volume of IPOs and proceeds in the U.S. saw a significant increase in the first half of 2024 compared to the previous year, while mainland China and Hong Kong experienced a decline in listings. This shift has led many companies that were initially planning to list in mainland China’s A share market to pivot towards Hong Kong. The recent measures issued by China to promote venture capital, along with public statements supporting IPOs, have generated optimism among investors and analysts. The speed of IPO approvals will be closely monitored as a potential indicator of a notable change in the IPO landscape.
The economic recovery in mainland China, coupled with an uptick in consumer spending, presents opportunities for companies considering IPOs. Despite a slower growth rate in retail sales, there is a sense of optimism around the potential for consumer-focused companies to launch successful IPOs. Additionally, global central banks pulling back from aggressive interest rate hikes could make IPOs more attractive compared to Treasury bonds. However, Chan emphasized that a further reduction in interest rates could significantly impact the IPO market and further enhance investor interest.
Current Landscape and Challenges
In the first half of the year, Hong Kong IPOs raised $1.5 billion, marking a 34% decline from the previous year. Comparatively, mainland China IPOs experienced an 85% drop in proceeds during the same period. The CEO of Hong Kong Exchanges and Clearing Limited, Bonnie Chan, highlighted a growing pipeline of potential IPOs in Hong Kong. However, she emphasized the importance of favorable market conditions for successful launches and pricing strategies. The average first-day return for Hong Kong IPOs in 2024 has been notably higher than in previous years, signaling a positive shift in market dynamics.
Looking ahead, Chan predicts an increase in the number of IPO deals in the second half of 2024, particularly among medium-sized offerings. He anticipates a stronger market momentum in 2025, driven by improving economic conditions and investor sentiment. Despite challenges such as geopolitical tensions and regulatory scrutiny, Chan remains optimistic about the long-term potential of the Hong Kong IPO market. As the market continues to evolve and adapt to changing dynamics, the stage is set for a resurgence in IPO activity and investor participation in Hong Kong’s capital markets.