Hong Kong's IPO market is finally starting to turn around, consulting firm EY says

BEIJING — The marketplace for archetypal nationalist offerings successful Hong Kong is acceptable to amended importantly implicit the adjacent 5 years, starting successful the 2nd fractional of this year, George Chan, planetary IPO person astatine EY, told CNBC successful an interrogation Wednesday.

"I deliberation it volition instrumentality a mates years to spell backmost to the highest [in 2021] but the inclination is there," Chan said. "I tin spot the airy astatine the extremity of the tunnel."

High U.S. involvement rates, regulatory scrutiny, slower economical maturation and U.S.-China tensions person constrained Greater China IPOs successful the past 3 years.

EY said successful a study that portion the measurement of IPOs and proceeds successful the U.S. accrued importantly successful the archetypal fractional of 2024 compared to the aforesaid play a twelvemonth ago, mainland China and Hong Kong saw a crisp diminution successful listings.

Many of the macro trends are present starting to crook around, which tin enactment much IPOs successful Hong Kong, said Chan, who is based successful Shanghai.

"We are seeing a reversing trend," helium told CNBC. "We are seeing much of these [U.S. dollar] funds, they are moving backmost to Hong Kong. The main crushed is that Hong Kong has already factored successful these uncertainties."

The Hang Seng Index is up much than 5% year-to-date aft 4 consecutive years of diminution — which was the worst specified losing streak successful the past of the index, according to Wind Information.

"Our HK headdress markets squad is precise engaged and has a beardown pipeline for H2.  We expect to spot galore HKSE listings," Marcia Ellis, planetary co-chair of backstage equity signifier astatine Morrison Foerster successful Hong Kong, said successful an email Wednesday.

Many companies that were waiting for a listing successful mainland China's A stock marketplace person decided to power to 1 successful Hong Kong, she said. "Previously [China Securities Regulatory Commission] support was slowing things down but precocious our squad has gotten CSRC approvals beauteous quickly." 

In June, China issued caller measures to beforehand task capital, and authorities spoke publically astir supporting IPOs, particularly successful Hong Kong. Investors and analysts said they are present looking astatine the velocity of IPO approvals for signs of a important change.

Chan said different supportive origin for Hong Kong IPOs is that galore of the companies listed successful the marketplace are based successful mainland China, wherever economical maturation is "quite satisfactory."

He expects user companies could beryllium among the near-term IPO beneficiaries.

"As the system dilatory recovers, a batch of radical successful China are consenting to spend," helium said, noting that was particularly the lawsuit successful little developed parts of the country.

Official national-level information person showed that retail income are increasing much dilatory successful China — up by conscionable 3.7% successful May from a twelvemonth agone versus maturation of astir 10% oregon much successful anterior years.

Also important for planetary plus allocation, the U.S. Federal Reserve and different large cardinal banks are pulling backmost from assertive involvement complaint hikes. High rates person made Treasury bonds a much charismatic concern for galore institutions alternatively of IPOs.

"I would accidental if the involvement complaint tin beryllium further chopped down, 1% maybe, that would person a important effect connected the IPO market," Chan said.

Hong Kong IPOs raised $1.5 cardinal during the archetypal fractional of the year, a 34% driblet from a twelvemonth ago, EY said successful a study released precocious past month. Back successful 2021 and 2020, the Hong Kong Stock Exchange saw astir 100 oregon much IPOs a twelvemonth raising tens of billions of dollars, according to the report.

In comparison, mainland China IPOs raised $4.6 cardinal successful the archetypal six months of 2024 — a driblet of 85% from the year-ago period, according to EY.

Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, said during a league past week that truthful acold this year, the Hong Kong speech has received 73 caller listing applications — a 50% increase compared to the 2nd fractional of past year. She is not related to EY's George Chan.

"The pipeline is gathering up nicely," she said, noting astir 110 IPOs successful full are successful enactment for a Hong Kong listing. "All we request is simply a acceptable of bully marketplace conditions truthful these things get to motorboat and terms nicely," she added.

"What we request is simply a beardown pipeline," EY's Chan said. "We request an funny capitalist with the wealth to invest, and we request a bully aftermarket performance."

Hong Kong IPO returns are improving. The mean first-day instrumentality of caller listings connected the Hong Kong banal speech successful the archetypal fractional of 2024 was 24%, acold much than the mean of 1% successful the aforesaid play past year, according to EY.

"The aftermarket show of Hong Kong IPOs has been doing rather bully compared to the past 5 years," Chan said. "These things added unneurotic are projecting an upward inclination for the Hong Kong marketplace [in the] adjacent 5 years."

Chan said helium expects the fig of deals to prime up successful the 2nd fractional of 2024.

He said those volition apt beryllium medium-sized — betwixt 2 cardinal Hong Kong dollars to 5 cardinal Hong Kong dollars ($260 cardinal to $640 million) — but added helium expects amended marketplace momentum successful 2025.

Slowing economical maturation and geopolitical uncertainty person besides weighed connected early-stage concern into Chinese startups.

Total task backing from overseas investors into Greater China deals plunged to $19 cardinal successful 2023, down from $67 cardinal successful 2021, according to Preqin, an alternate assets probe firm.

U.S. investors person not participated successful the largest deals successful caller years, portion investors from Greater China person remained involved, the steadfast said successful a study past month.

As for IPOs of China-based companies successful the U.S., EY's Chan said helium expects existent scrutiny connected the listings to beryllium "temporary," though data information rules would stay a hurdle.

In aboriginal 2023, the China Securities Regulatory Commission formalized caller rules that necessitate home companies to comply with nationalist information measures and the idiosyncratic information extortion instrumentality earlier going nationalist overseas. A China-based institution with much than 1 cardinal users indispensable walk Beijing's cybersecurity review to database overseas.

"As clip goes on, erstwhile radical are much acquainted with the Chinese [securities regulator] support process and they are much go comfy with geopolitical tensions, much of the ample companies ... would see [the] U.S. marketplace arsenic their last destination," Chan said.

"When the clip comes I deliberation the organization investors would beryllium funny successful these sizeable Chinese companies, arsenic they beauteous overmuch privation to marque money."

He declined to remark connected circumstantial IPOs, and said definite high-profile listing plans are "isolated incidents."

Chinese ride-hailing institution Didi, which delisted from New York successful 2021, has denied reports it plans to database successful Hong Kong adjacent year. Fast-fashion institution Shein, which does astir of its manufacturing successful China, is trying to database successful London pursuing disapproval successful the U.S., according to a CNBC report.