2018 Q3 Review and outlook for the Chinese Mainland and Hong Kong IPO Markets

The National Public Offering Group of professional services organization Deloitte China ("Deloitte") 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.
• Hong Kong's global leadership is to be well supported by mega and new economy listings in Q4 and Hong Kong is well positioned to remain as the crown jewel in the IPO race by the end of 2018.
• Mainland IPO activities are to remain lackluster under market reform and both the numbers of and proceeds from new IPOs on the Mainland in 2018 are anticipated to be lower than those in 2017.

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. 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.

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.

But 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.

Closer scrutiny by the regulator over IPO candidates, and a plunging market have all sent the A-share IPO activities down, offsetting the favorable development of inclusion of A-shares in the MSCI. 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.

Deloitte, therefore, forecasts for around 110-130 companies to raise approximately RMB140-170 billion for the full year in the A-share market.