Mainland and Hong Kong IPO markets to become more vibrant in remaining three quarters in 2023

Deloitte China's Capital Market Services Group (CMSG) today released its Q1 2023 analysis and forecasts for the performance of Chinese Mainland and Hong Kong initial public offering (IPO) markets.

The analysis indicates that Shenzhen Stock Exchange and Shanghai Stock Exchange were the world's largest and 2nd largest listing destinations by funds raised in Q1 2023 after hosting two of the world's 10 biggest IPOs each during the quarter. Abu Dhabi Securities Exchange took 3rd place with an IPO from a natural gas company, which was the world's 10 largest listing. Nasdaq took 4th place and the Stock Exchange of Hong Kong was in 5th.

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

The full reopening of the Chinese Mainland and Hong Kong boundaries, numerous enhancements to Stock Connect, including the upcoming enhancement of Southbound Stock Connect with the addition of RMB-denominated stock trading desks, more spin-offs from technology companies, and the launch of the Specialist Technology Company listing rules are to set help the Hong Kong IPO market rebound in the remaining three quarters of 2023. However, how the US Fed's interest rate hikes and global banking issues develop over the year will determine the volatility and liquidity in global capital markets and ultimately the listing windows for companies' Hong Kong IPOs.

As of 31 March 2023, the A share market had 68 new listings raising RMB65.1 billion against 85 IPOs raising RMB179.9 billion in Q1 2022. This represents a drop in the number of IPOs by 20% and a 64% plunge in funds raised. In Q1 2023, 23 IPOs were listed on Shanghai Stock Exchange raising RMB29.0 billion. Another 23 companies were newly listed on Shenzhen Stock Exchange raising RMB32.4 billion. There were 22 IPOs on Beijing Stock Exchange raising a combined RMB3.7 billion. Beijing Stock Exchange had a sharp rise in activity, hosting the largest number of IPOs, while ChiNext raised the most funds. Only Shenzhen Main Board and Beijing Stock Exchange saw growth in IPO proceeds during the quarter.

"We were pleased to see full-implementation of the registration-based regime in Q1 2023. 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 the opportunities to raise funds, improve governance, and expand their development by going public. Reform of the capital market will provide a strong boost to the country's economic development in the long run," says Vivienne Li, Southern Region A-Share Offering leader, Capital Market Services Group, Deloitte China.

The CMSG forecasts that for the full year, 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 could have 120 to 140 listings raising RMB305 billion to RMB340 billion. ChiNext is forecast to have 150 to 170 new listings raising about RMB185 billion to RMB210 billion. The main boards in Shanghai and Shenzhen will have about 60 to 80 IPOs raising RMB110 billion to RMB125 billion and there should be about 100 to 120 listings raising RMB20 billion to RMB24 billion on Beijing Stock Exchange.

"Global banking issues have made capital markets more volatile. A mature market like Nasdaq could only take 4th place in global IPO proceeds in Q1 2023. The Shenzhen and Shanghai 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 ranking. 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," says Dick Kay, Offering Services leader, Capital Market Services Group, Deloitte China.

Hong Kong hosted 18 IPOs raising HKD6.6 billion in Q1 2023 versus 15 IPOs raising HKD13.6 billion in Q1 2022. This represents a 20% rise in deal volume but a 51% plunge in deal value. In Q1 2023, all the offerings were small and there were no return listings of China concept stocks or IPOs of life science and healthcare companies.

"This slow performance is in line with our forecast. It will take time for business and economic activities, especially between the Chinese Mainland and Hong Kong, to fully revive after the reopening of the boundaries, and eventually market valuations and IPO activity will follow suit. Deal volume, deal value, and valuations on the Hong Kong's Main Board have yet pick up to levels seen pre-COVID," says Robert Lui, Southern Region Offering Services leader and Hong Kong Offering leader of the Capital Market Services Group, Deloitte China.

For 2023, the CMSG forecasts that Hong Kong will record 110 new listings raising approximately HKD230 billion. This will be driven by the full reopening of the Chinese Mainland and Hong Kong boundaries, enhancements to Stock Connect, spin-offs of technology companies, and the new listing regime for Specialist Technology Companies.

"We expect 2H 2023 to be an exciting time for the Hong Kong IPO market with expectations of the end of US interest rate hikes leading to 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 their listings and spin-offs. As larger Hong Kong-listed international companies are brought into Stock Connect, more overseas companies will start looking to list in Hong Kong. We also expect some special purpose acquisition companies to announce de-SPAC transactions, which will take the market limelight."

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 showed a significant improvement in Q1 2023. Thirteen Chinese firms went public raising HKD553 million against just a single listing raising USD39 million in Q1 2022.

"We are excited to see this rebound and positive about the outlook for the US IPO market for Chinese companies in 2023, especially now Chinese economic activity is picking up," says Allen Lau, Capital Market Services Group leader, Deloitte China. "Companies still find great value in US listings given their international status and recognition, mature development, great diversity, and receptiveness to emerging business models to build brand eminence and gain recognition and funds from investors. These strengths are not easily found in other capital markets," adds Allen Lau, Capital Market Services Group leader, Deloitte China.
 

Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as of 31 March 2023.

Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, Shenzhen Stock Exchange, Beijing Stock Exchange, Deloitte analysis; excludes transfers from the Select Tier of the National Equities Exchange and Quotations to Beijing Stock Exchange.

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

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