Q3 2017 Review and Outlook of Chinese Mainland and Hong Kong IPO Markets

The latest analysis from the National Public Offering Group of professional services organization Deloitte China indicates that the Stock Exchange of Hong Kong is expected to ascend into third place and the Shanghai Stock Exchange to remain in the runner-up position in the IPO proceeds race behind the New York Stock Exchange (NYSE) by the end of September 2017. The NYSE took a firm lead in IPO proceeds raised by end of this third quarter due to three mega IPOs during the first six months of this year.

Deloitte expects Hong Kong to see a sharp rise in the number of new listings but a drop in the IPO funds raised year-over-year. The surge in the number of IPOs on the Growth Enterprise Market (GEM) and the overall reduced offering scale of the mega IPOs contributed to this year's phenomenon. Hong Kong's IPO market has clearly diversified in its role not just as a preferred listing destination for blue-chips and large Chinese business or state-owned enterprises but also a fundraising venue for potentially high-growth local and international small-and-medium enterprises (SMEs). The strong enthusiasm from the local and international SMEs to tap Hong Kong’s bullish market this year for growth and development has boosted IPO debuts on and a long listing application pipeline for the GEM.

At the same time, for the year-to-date to the end of the third quarter the A-share IPO market is likely to present a remarkable increase in the number of new listings and proceeds. As larger issuers continued to take the Main Board as a listing venue, the Shanghai Stock Exchange is expected to remain the largest Chinese IPO market.

Deloitte foresees another one to two large IPOs from the technology sector to complete in Hong Kong before the end of the year. As the IPO review and approval process on the Mainland continues to present uncertainties for some applications, the likelihood of certain larger property developers and banks to go public in the remaining three months there may be small. Driven by a steady stream of at least 30 IPO debuts each month, China’s A-share IPO market may see a new record in the number of IPOs under the existing regulated IPO activities. We, therefore, believe the current ranking for the top three stock exchanges may remain unchanged for the remainder of this year.

The attainment of a level of IPO proceedings of approximately HK$130 billion-150 billion for 2017 is still subject to factors including favorable global macroeconomic conditions such as expectation over a potential delay in the timetable of U.S. interest rate hikes, U.S. tax reform, and China's 19^th Communist Party Congress and whether another huge IPO is completed before the end of year.

As for the outlook of Mainland's new listing market, the trends that were observed in the previous quarters are likely to be maintained moving forward. These include the dominance of small and medium manufacturing and technology companies in terms of the number of upcoming new listings and fast pace of IPOs under the existing regulatory regime.