Mainland and Hong Kong IPO markets to become more robust in 2H 2023

Deloitte China's Capital Market Services Group (CMSG) today released its 1H 2023 analysis and forecasts for the performance of Chinese Mainland and Hong Kong initial public offering (IPO) markets.

The analysis indicates that Shanghai Stock Exchange and Shenzhen Stock Exchange will have been the world's largest and 2nd largest listing destinations by funds raised in 1H 2023. Shanghai hosted three of the world's 10 biggest IPOs while Shenzhen recorded one during the period, with the four IPOs coming from the semiconductor or energy and resources sectors. New York Stock Exchange will have taken 3rd place with the world's largest IPO, which was from a consumer healthcare company. Abu Dhabi Securities Exchange and Nasdaq will have taken 4th and 5th place respectively and the Stock Exchange of Hong Kong will have ranked 6th.

The CMSG expects IPO activity in the Chinese Mainland to become more vibrant in 2H 2023 following full implementation of the registration-based regime. The market is expected to record more IPO funds raised in the whole of 2023 than it did in 2022, a record year, boosted by a continuous revival in economic and business activities, Government policies and measures to stabilize growth, and the normal issuance of IPOs.

Numerous enhancements to Stock Connect, including its addition of HK-listed overseas companies, more spin-offs from technology companies, the return of China concept stocks, and the launch of the Specialist Technology Company listing rules are to set help the Hong Kong IPO market rebound in around Q4 2023, following an expectation that US interest rate hikes might peak in Q3 2023.

The timing of the US Fed indicating that it will end interest rate hikes, developments in the global banking sector, and China’s economic recovery resulting from economic stimulus measures over the remainder of the year will affect volatility and liquidity, particularly sentiment and capital flow towards stocks, a potential pickup in stock valuations, and ultimately the listing windows for companies' Hong Kong IPOs.

The CMSG expects the A share market will have had 174 new listings raising RMB209.5 billion in 1H 2023 against 169 IPOs raising RMB311.9 billion in 1H 2022. This would represent a 3% rise in the number of IPOs and a 33% drop in funds raised.

Shanghai Stock Exchange is forecast to have had 62 IPOs raising RMB114.4 billion, followed by Shenzhen Stock Exchange with 70 IPOs raising RMB87.2 billion, and Beijing Stock Exchange with 42 IPOs raising RMB7.9 billion. ChiNext is expected to have maintained its lead in IPO volume, whereas the SSE STAR Market is forecast to have raised the most funds. Beijing Stock Exchange and the Shanghai and Shenzhen main boards have seen a rise in activity, hosting more IPOs.

"We were pleased to see full-implementation of the registration-based regime in Q1 2023," says Jonathan Zhao, Eastern Region A-Share Offering leader, Capital Market Services Group, Deloitte China. "The implications of this regime are not just about an expected boost to IPO activity, but more importantly about enabling companies from different sectors to have opportunities to raise funds, improve governance, and expand their development by going public. This will also enable more companies to improve their quality when going public and make more good quality businesses available in the market to invest in. This important reform of the capital market will provide a strong boost to the country's economic development in the long run."

For the full year, the CMSG forecasts that the A-share market will record 430 to 510 IPOs raising approximately RMB620 to RMB699 billion, versus 2022's 424 new listings raising RMB586.8 billion. The SSE STAR Market is expected to have 120 to 140 listings raising RMB240 billion to RMB275 billion, followed by ChiNext with 150 to 170 new listings raising about RMB185 billion to RMB210 billion. The main boards in Shanghai and Shenzhen will have around 60 to 80 IPOs raising RMB175 billion to RMB190 billion, with about 100 to 120 listings raising RMB20 billion to RMB24 billion on Beijing Stock Exchange.

"The Shanghai and Shenzhen stock exchanges showed outstanding performance in just a few months after pandemic control measures were optimized and policies to stabilize economic growth were introduced, taking them to 1st and 2nd place in the global ranking of IPO proceeds in 1H 2023," says Dick Kay, Offering Services leader, Capital Market Services Group, Deloitte China. "We are positive that these two stock exchanges will continue to outshine their domestic and global counterparts in 2023 due to the full implementation of the registration-based stock issuance mechanism and the country's economic stabilization measures."

Hong Kong is expected to have had 31 IPOs raising HKD17.8 billion in 1H 2023, versus 24 IPOs raising HKD17.7 billion in 1H 2022. This would represent a 29% rise in deal volume and a 1% increase in deal value. Hong Kong hosted only one large offering and one return listing of a China concept stock in 1H 2023.

"Global banking issues, ongoing US interest rate hikes, and the US debt ceiling deal have made capital markets more volatile," says Robert Lui, Southern Region Offering Services leader of the Capital Market Services Group, Deloitte China. "Many investors have divested from stocks due to weak market performance, poor sentiment, and low valuations. But the Hong Kong capital market has undergone many exciting reforms such as the launch of the listing regime for Specialist Technology companies and today's launch of dual counter securities. Many businesses are still actively preparing for listings here while they wait for key indicators like market valuations to pick up."

For this full year, the CMSG forecasts that Hong Kong will record nearly 100 new listings raising around HKD180 billion. This will be driven by enhancements to Stock Connect, spin-offs of technology companies, listings of China concept stocks, the new listing regime for Specialist Technology Companies, and listings from international companies.

"Once the US Fed can indicate clearly when the interest rate hike cycle will end and China can introduce more economic stimulus measures, we expect the Hong Kong IPO market to re-activate, driving a repositioning of funds' investment strategies to Asia's high-growth regions like China," says Edward Au, Southern Region managing partner, Deloitte China.

"The Government's supportive direction for privately owned enterprises has added momentum to the technology sector, which will facilitate related listings and spin-offs. As larger Hong Kong-listed international companies are brought into Stock Connect, more overseas companies, including some large Asian businesses, will start looking to list in Hong Kong. Return listings of China concept stocks, however, might remain slow."

Following the US Public Company Accounting Oversight Board's announcement that it has gained access to the working papers of Chinese listing registrants in the US in mid-December 2022, the US IPO market for Chinese companies improved in 1H 2023, with 20 Chinese firms going public raising HKD626 million against just four IPOs raising USD100 million in 1H 2022.

"We are excited to have seen this positive change to the US IPO market for Chinese companies in 1H 2023," says Allen Lau, Capital Market Services Group leader, Deloitte China. "Amid the full-implementation of the Mainland's registration-based mechanism and continuous reforms of Hong Kong's listing regimes, many Chinese companies were still attracted to list in the US given the unique strengths of this market, including its international status and recognition, mature development, great diversity, and receptiveness to emerging business models."

Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as of 30 June 2023.

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

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

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