Chinese Mainland and Hong Kong to emerge as key listing venues for new economy companies

Published Date: 16 June 2020

• Mainland and Hong Kong markets thrived in 1H 2020
•  New economy companies, especially tech businesses, continued to list despite COVID-19
• Regulatory reforms and business resilience set to prompt more new economy listings in 2H

In 1H 2020, the Chinese Mainland and Hong Kong initial public offering (IPO) markets are set to have remained strong amid the COVID-19 pandemic, according to the latest Deloitte China National Public Offering Group analysis, released today.

Helped by the large number of tech listings on the SSE STAR Market, Shanghai Stock Exchange sustained its global leadership in IPO funds raised, surpassing New York Stock Exchange and Nasdaq once again. Hong Kong Stock Exchange rose to 3rd place following the mega secondary listings of two US-listed Chinese tech firms.

Supported by the resilience of tech businesses, abundant market liquidity and various regulatory reforms, these trends are set to continue in 2H 2020. They will eventually form a cluster of dual-listed Chinese tech companies, allowing these businesses to meet domestic and international investors' appetites and support their rapid growth.

The tech sector remained vibrant even as most economic and business activities were suspended due to COVID-19 lockdowns. As the pandemic in the US and Europe has yet to subside, capital including some from various easing and relief measures, is flowing into Greater China seeking investment targets, providing financing opportunities for further tech sector growth.

Moreover, the reforms and market developments listed below are set to encourage more Chinese tech firms to flock to Mainland and Hong Kong markets:

• Proposed changes to the listing regime for foreign businesses in the US;
• Incorporation of weighted-voting rights (WVR) and secondary listed companies into Hong Kong Hang Seng Indices (HSI);
• Shortening the period from offering to pricing in Hong Kong;
• Registration-based regime for Shenzhen's ChiNext;
• Enhanced Mainland listing rules for red chips;
• Transfer listings to ChiNext or the STAR Market for 'selection tier' issuers on the National Equities Exchange and Quotations;
• The partnership between Hong Kong Exchanges & Clearing and MSCI to launch a suite of Asia & Emerging market equity index futures and options; and
• Potential introduction of corporate WVR beneficiaries in Hong Kong.

In 1H 2020, Hong Kong is expected to have had 59 new listings, 22 percent fewer than in 1H 2019. However, proceeds are expected to have increased by 25 percent to about HKD87.1 billion from HKD69.9 billion.

"We are pleased to see the market picking up after a slow Q1, especially with another two mega secondary listings from renowned Chinese tech brands. This is another milestone that demonstrates the success of the listing regime introduced in 2018. Last year, Hong Kong established itself as the world's second largest biotech listing venue. The market has been awaiting more WVR and secondary listed innovative companies and now conditions are more conducive to an increase in such listings," says Edward Au, Deloitte China Southern region managing partner and co-leader of the National Public Offering Group.

Boosted by new listings on the STAR Market, the Chinese Mainland is expected to have recorded about 117 IPOs raising RMB138.1 billion in 1H 2020, up 83 percent and 129 percent respectively from 64 new listings raising RMB60.4 billion in 1H 2019. Shanghai, with about 72 IPOs raising RMB110.5 billion, is set to have remained ahead of Shenzhen (45 listings; RMB27.6 billion).

"We are excited to see the fast growth of the STAR Market, which has surpassed the two markets in Shenzhen by funds raised. It is now a hub for listings from many younger innovative, new economy companies, especially in technology, media and telecommunications (TMT), life sciences and healthcare. We also look forward to the launch of ChiNext's registration-based regime, which will herald another round of transformation of Mainland capital markets," adds Anthony Wu, China’s A-Share Capital Market leader of the National Public Offering Group.

IPO activity among Chinese companies in the US remains subdued by the pandemic, intense Sino-US relations and policy headwinds. About 12 new listings are expected to have raised USD1.84 billion in 1H 2020, versus 15 companies raising USD1.64 billion in 1H 2019. Large offerings from a cloud business, biotech company and an online retail and distribution platform contributed to the small increase in IPO proceeds.

"Chinese companies have been prompted to rethink their long-term financing options ever since the Sino-US trade war started and the STAR Market's establishment was first announced. Recent US regulatory changes and the inclusion of WVR and secondary listed stocks into the HSI in August will accelerate this process. If corporate WVR beneficiary rules are introduced in 2H 2020 and the IPO pricing process is streamlined, it will sharpen Hong Kong's edge as the ideal overseas listing venues for many Chinese businesses, including the investment portfolio companies of tech giants, and new economy companies. Hong Kong could become as alluring as the US for tech listings," explains Au.

Against this backdrop, Deloitte forecasts Hong Kong will have had about 130 new listings raising HKD160-HKD220 billion over the course of 2020, including at least a handful of secondary listings by US-listed Chinese tech businesses. Another three or four mega listings could raise about HKD7.8 billion each in 2H 2020, including IPOs by a food and beverage brand, an online medicine and healthcare platform and a financial services institution. Overall, life sciences, healthcare, biotech and TMT listings are set to shine.

"We expect a market revaluation as new economy companies gain a stronger foothold in the Hong Kong capital market with the rise of related investment funds and market participants," Au adds.

In the Mainland market, Deloitte anticipates 100-120 new listings on the STAR Market raising RMB110 billion to RMB130 billion, and a further 130-160 IPOs raising RMB170 billion to RMB220 billion across the Main Board, SME Board and ChiNext, for the full year.

"The Mainland capital market is still developing. It's challenging and exciting to see the extent and magnitude of reforms over recent years that have established a multi-tier capital market for businesses of different sizes and sectors. We believe ChiNext's registration-based regime will succeed, following the STAR Market's equivalent. We look forward to seeing more businesses reap the fruits of capital market reform in the years to go come," concludes Wu.

Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as at 30 June 2020.

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

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

Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, Nasdaq, Bloomberg and Deloitte estimates and analysis.