Performance of IPO activity can be polarized in 2020

Published: 3 April 2020

The Chinese Mainland and Hong Kong initial public offering (IPO) markets continued to thrive in Q1 2020 despite the coronavirus disease 2019 (COVID-19) pandemic, according to a report released by Deloitte China's National Public Offering Group today. Shanghai Stock Exchange soared to 1st place in IPO funds raised, surpassing both main exchanges in the US. Hong Kong Stock Exchange took 5th place.

Despite a tumbling market due to uncertainties around the COVID-19 outbreak and outlook for key economies, Hong Kong's deal volume matched its Q1 2019 level. At the same time, reform of the STAR Market in Shanghai and ChiNext in Shenzhen boosted A-share IPO activity, even though major business and manufacturing operations across China were restricted from late January to early March.

On one hand, developments in the pandemic and its full impact on the global economy remain unknown, which could postpone the listing timetables of IPO companies. On the other hand, quantitative easing, economic stimulus and relief measures introduced by different countries to confront challenges from the COVID-19 outbreak could stimulate the global capital market dramatically once the pandemic is dispelled. Hence, IPO activity could swiftly become even more active. But, in the longer run, major reforms including the new Chinese Securities Law, a registration-based regime for ChiNext, the full circulation of H-shares, and consultation on corporate entities with weighted voting rights (WVRs) beneficiaries in Hong Kong, are set to make both capital markets more attractive for potential IPO candidates.

As of 31 March 2020, Hong Kong had recorded HKD14.1 billion in proceeds raised from 37 new listings. This represents a fall of about 31 percent from the HKD20.4 billion raised in Q1 2019, although the number of IPOs was the same.

"Hong Kong's capital market has again demonstrated its ability to weather challenges while driving fundraising activity. Although its IPO funds dwindled, its number of new listings was 1st among all stock exchanges in Q1 2020," comments Edward Au, Deloitte China Southern region managing partner and co-leader of the National Public Offering Group.

The Mainland market ended Q1 2020 with substantial year-on-year growth in deal volume and funds raised. It saw 51 new listings raising RMB78.1 billion, up from 31 IPOs raising RMB25.6 billion in Q1 2019, representing increases of 65 percent and 205 percent respectively. The Shanghai market had 34 new listings raising RMB68.5 billion, while Shenzhen Stock Exchange raised RMB9.6 billion from 17 IPOs.

"The benefits of having the new STAR Market became more apparent in this exceptional period. It contributed nearly half of all deals and two-fifths of total IPO funds over the quarter. This implies it is established as an effective fundraising platform for small to medium-sized, innovative, high-tech companies. We welcome the new guidelines that encourage "hard technology" businesses to list on the market, as well as recent enhancements to its listing rules, which will provide greater support to emerging sectors," says Anthony Wu, China's A-Share Capital Market leader of the National Public Offering Group.

In the US, six Chinese companies went public raising USD370 million in Q1 2020, versus six listings raising USD260 million in Q1 2019. However, there were no new listings in March 2020 as US markets hit circuit breakers. More Chinese life science and pharmaceutical companies floated shares this Q1, whereas Q1 2019 was dominated by financial services institutions.

Looking at the rest of 2020, the report predicts that Hong Kong will have about 160 IPOs raising HKD160 billion-HKD220 billion for the full year. This is backed by a pipeline of more than 120 listing applicants as of end-Q1 2020. In addition, new listings from life science, pharmaceutical, biotech and TMT companies are to continue to be the market spotlights. 

"Although we believe the impact of the pandemic on the global capital market could be temporary, the performance of Hong Kong's IPO market might still be affected if the pandemic continues beyond the first half of the year. But, once business and manufacturing activity around the world resumes, more IPOs are likely to flock to Hong Kong, which has a reputation for capital appeal and an international investor base. This will also be supported by the stimulus, easing and relief packages of many countries, which are likely to provide a solid foundation for a strong recovery of the global capital market and economy," adds Au.

Wu suggests recent reforms to ChiNext and the STAR Market will spur IPO activity on both exchanges. Given more than 400 companies were awaiting listing reviews at end-March 2020, and over 50 cases had the green light to list, Deloitte forecasts 140-170 new listings raising RMB180 billion-220 billion on the Main Board, SME Board and ChiNext by the end of 2020. The STAR Market is expected to record 120-150 IPOs raising RMB130 billion-160 billion. 

Notes to editors:

Unless specified otherwise, all statistics are updated with our estimates and analysis as at 31 March 2020.

Sources for HK IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis, and excludes GEM to MB transfers.

Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, and Deloitte estimates and analysis.