2018 review and 2019 outlook for the Chinese Mainland and Hong Kong's IPO Markets

The National Public Offering Group of professional services organization Deloitte China ("Deloitte") recently released its 2018 Review and 2019 outlook for the Chinese Mainland and Hong Kong's initial public offering ("IPO") markets.

The analysis indicates that:

• Hong Kong's IPO market achieved stellar result as the top global listing venue in 2018, following the major reform of the city's listing regime this year.
• Both the Shanghai and Shenzhen markets were slower due to the direct impact of the Sino-U.S. trade tensions and subsequent trade war, the depreciation of the Renminbi, economic slowdown and stricter listing review throughout 2018.
• The U.S. stock exchanges continue to be popular among Chinese companies especially technology, media and telecommunications enterprises, given the high concentration of technology-focused investment funds there. Underscoring this trend, in 2018, amid the bullish U.S. stock market, bourses there experienced a boost in IPOs from Chinese companies.

In 2019, developments during and after the trade war truce, pace of U.S. interest rate hike, the U.K. political scene, the final Brexit arrangements and timetable, and the Chinese local debt issue are, however, key events to watch for the capital flow indicators, investor appetite for IPOs, and business performance of many Chinese-backed IPO candidates.

In the longer run, the listing platforms of the Mainland and Hong Kong will complement and supplement each other more on the back of the development of the Greater Bay Area, rise of more Chinese unicorns driving the new economy forward, and greater connectivity between the two capital markets.

In Hong Kong, the uncertainty in the economic outlook and volatile market would impact the timing and the number of companies that can go public at last hugely. Deloitte anticipates investors will observe the outcome of the Central Economic Work Conference, a meeting that is to be held soon, and any potential sign of introducing economic stimuli to provide support for the downward pressure of the Chinese economy. Around 200 IPOs raising proceeds of approximately HK$180-230 billion are forecasted for 2019 under the current market situation based on a pipeline of just over 200 IPO applicants. The new economy, including technology firms, pharmaceutical and pre-revenue biotech, and education companies are likely to attract the greatest market attention. Other potential highlights include some potential H-share listings from existing issuers of the National Equities Exchange and Quotations.

The IPO sentiment in Shanghai and Shenzhen will likely be supported by measures like the technology board, Shanghai-London Stock Connect and potential inclusion of more A shares into the MSCI. Given numerous factors including the ongoing tight regulatory scrutiny, uncertainty of the outcome and development of the Sino-U.S. trade truce, and the ongoing decline of the Renminbi foreign exchange rate, Deloitte expects the A-share market to have 110-150 new listings raising RMB140-170 billion for next year.