TMT IPO and new economy unicorns to firmly set Hong Kong as crown jewel of global IPO ranking in 2018

• Hong Kong's global leadership to be well supported by mega and new economy listings in Q4
• Hit of the stronger U.S. dollar, escalating Sino-U.S. trade war, weakening Renminbi and various Eurozone uncertainties on listing window and size of larger deals
• Mainland IPO activities to remain lackluster under market reform

Published: 26 September 2018

The National Public Offering Group of professional services organization Deloitte China ("Deloitte") today released its latest forecasts of the initial public offering ("IPO") markets of the Chinese Mainland and Hong Kong in 2018. In terms of the proceeds raised, the Hong Kong Stock Exchange will rise to the top IPO spot while the proceeds at Shanghai and Shenzhen would rank after the top three venues, Hong Kong Stock Exchange, New York Stock Exchange and NASDAQ by the end of the third quarter of 2018. The new listing regime that opens Hong Kong’s bourse to pre-revenue biotech and weighted voting rights companies as well as the market's ability to lure liquidity to jumbo flotations are keys to Hong Kong's success in 2018.

While the momentum for new listings in the Mainland is to remain slow due to the market reform in the fourth quarter of 2018, Hong Kong is well positioned to remain as the crown jewel in the IPO race by the end of 2018. However, the stronger U.S. dollar, escalating Sino-U.S. trade war, weakening Renminbi and various Eurozone uncertainties will determine the final performance of Hong Kong's IPO market in the last quarter.

Including companies planning to commence new stock trading from 27 September 2018, Deloitte anticipates Hong Kong to see 158 IPOs raising approximately HK$243.4 billion by the end of September 2018. Both the number of new listings and proceeds are to surpass the 106 IPOs raising funds of HK$85.7 billion in the first three quarters of 2017 by 49% and 184% respectively.

"We are excited to see more direct benefits of the new listing regime to the international status of Hong Kong's IPO market within such a short period of time. The capital market's advantage and proven ability of luring liquidity could still well support supersize listings despite a tumbling market situation with rising uncertainties and added tensions arising from the Sino-U.S. trade war, the performance of the U.S. dollar and Renminbi, Brexit and the currency crisis from emerging markets during the third quarter," commented Mr. Edward Au, Co-Leader of the National Public Offering Group, Deloitte China.

The far fewer new listings and reduced proceeds of the A-share market comprising the stock exchanges in Shanghai and Shenzhen by the end of September 2018 contrasts with its performance in 2017. The two exchanges are likely to close with a total 87 IPOs raising RMB116.3 billion against 350 IPOs raising RMB176.0 billion in the first three quarters of 2017, indicating reductions of 75% and 34% respectively. With a forecast of no huge offering in the market during the third quarter of 2018, the Shanghai Stock Exchange is boosted by the IPO of Foxconn Industrial Internet to assume a stronger position over its Shenzhen peers. The former bourse is to raise approximately RMB77.5 billion while the latter would record IPO funds of about RMB38.7 billion.

"Closer scrutiny by the regulator over IPO candidates, fewer approved applications, a plunging market have all sent the A-share IPO activities down, offsetting the favorable development of inclusion of A-shares in the MSCI. But the ongoing priorities for a stable stock market and liquidity with additional emphasis on the quality of both IPO candidates and issuers will pay off resulting in brighter prospects for the A-share market in the longer run," noted Mr. Anthony Wu, Leader of A-Share Capital Market of the National Public Offering Group of Deloitte China.

Backed by a strong pipeline of over 200 IPO applicants and the market resilience in supporting a large number of IPOs, Deloitte forecasts Hong Kong to have about 220 IPOs raising approximately HK$300 billion in 2018. About 10 unicorn IPOs are expected for the entire year. Another wave of new economy IPOs, the third weighted voting right listing and IPOs from another five pre-revenue biotech companies are set to be the highlights in the fourth quarter of 2018.

"The impact of a dampening market and a range of uncertainties in the U.S., the Mainland, Eurozone and even the emerging economies are likely to hamper the listing window for the potential large issuers and valuation of Hong Kong's stocks. Nevertheless, the new economy business has contributed to the growth and has transformed the Chinese economy. Correspondingly, the number of Chinese unicorns has increased, and is the driving force for the capital market in the future. Coupled with the Greater Bay Area initiative and the Lok Ma Chau Loop that facilitate the gradual development of a new economy ecosystem in the area. Hong Kong, traditionally the first overseas IPO destination for Chinese companies, is well placed to complement the Chinese A-share market by embracing and supporting the listings of these new economy unicorns," added Mr. Au.

Given the continuous focus on market stability and IPO quality, Deloitte anticipates both the numbers of and proceeds from new IPOs on the Mainland in 2018 to be lower than those in 2017. The forecast is for around 110-130 companies to raise approximately RMB140-170 billion for the full year. Small and medium manufacturing, and technology and retail companies in the existing listing application pipeline will dominate the number of upcoming new listings in the A-share IPO market during the last quarter.  

Mr. Wu noted that some market players are observing the formation of the next Public Offering Review Committee and its impact on the new listing market in the fourth quarter. The imminent launch of the Shanghai-London Stock Connect is also viewed with optimism. But the intensified Sino-U.S. trade war and depreciation in the Chinese currency that would combine to have a broader impact also suggest that it would still take time for A-share IPO activities to bounce back.

Notes to editor:

Unless specified otherwise, all statistics are updated as at 30 September 2018 with estimations of upcoming IPOs that will debut from 21-30 September 2018.

Sources of the statistics for the Hong Kong IPO market: the Stock Exchange of Hong Kong, Deloitte's estimates and analyses, excluding the transfer of listings from GEM to the MB and proceeds of newly listed companies on the MB raised from their market stabilisation actions by 30 September 2018.

Sources of the statistics for the A-share IPO market: China Securities Regulatory Commission, Deloitte's estimates and analyses.