Mainland IPOs to slow further in 2024 following heightened scrutiny of listing process; Hong Kong to pick up after US interest rate cuts and funds start to redirect

Deloitte China's Capital Market Services Group (CMSG) today released its analysis of the performance of Chinese mainland and Hong Kong initial public offering (IPO) markets in Q1 2024 and the outlook for the last three quarters of 2024.

As of 31 March 2024, in terms of the funds raised from IPOs, the New York Stock Exchange came 1st due to four of the world’s top 10 listings. These included the IPO of a Finnish multinational sports equipment company, which was the world’s 2nd largest new listing. Nasdaq ranked 2nd after completing three of the top 10 IPOs. Switzerland’s SIX Swiss Exchange was in 3rd after the listing of a skincare company that was the world’s largest IPO in Q1 2024. The National Stock Exchange of India took 4th position with a large volume of new listings. New listings by a handful of large manufacturing and technology, media and telecommunications (TMT) companies enabled Shanghai Stock Exchange to earn 5th place in the ranking.

Following the announcement of several regulatory measures bringing heightened scrutiny of A-share listings and the quality of issuers since listing application, taking market demand and supply into consideration and the adoption of adjusted counter-cyclical measures in the IPO market, Chinese mainland IPO activity slowed further in Q1 2024. Compared to its performance over the last two years, the A-share IPO market is expected to slow considerably throughout 2024.

Hong Kong, meanwhile, has continued to be hit by external markets and weak sentiment, particularly around the timing of an end to the US interest rate hike cycle. Its IPO market had a slow start to Q1 2024, recording no mega or large listings against a backdrop of low market valuations. Despite various anticipated economic stimuli from the Chinese mainland to promote high-quality economic development, and different measures to improve Hong Kong’s stock market turnover and competitiveness in the short, medium and long term, the timing of US interest rate cuts in the next three quarters will be one of the key factors in directing the flow of the funds and determining the rebound of the Hong Kong IPO market in 2024. Companies that have filed for A-share listings switching their IPO plans to Hong Kong is another potential trend.

In Q1 2024, the Chinese mainland saw just 30 new listings raising RMB23.6 billion, versus 68 IPOs raising RMB65.1 billion in Q1 2023. The number of new listings tumbled by 56% and proceeds were reduced by 64%. The Beijing Stock Exchange and ChiNext led in terms of IPO volume, while Shanghai Stock Exchange led by proceeds raised with RMB14.8 billion from 11 new listings. Shenzhen Stock Exchange followed with RMB7.1 billion in proceeds from 11 IPOs. Beijing Stock Exchange had the lowest proceeds of RMB1.7 billion from eight new listings.

“Heightened scrutiny of new company listings in the A-share market led to declines in the number of IPOs and proceeds raised across all five markets. However, we are delighted that Shanghai Stock Exchange could still became top five of the global IPO market ranking in Q1 2024 due to the listings of several strong manufacturing and TMT companies,” says Dick Kay, Offering Services leader of the Capital Market Services Group, Deloitte China.

In Hong Kong, 12 new listings raised HKD4.7 billion in the first three months of 2024, representing a 33% decline in IPO volume and 30% drop in proceeds from 18 IPOs raising HKD6.7 billion in the same period of 2023.

“We are pleased that the Hong Kong market started to show positive signs in March with more new listings, better market turnover and a stronger pipeline as of the end of Q1 2024. Regulators continue to reform the stock market in different ways actively and tirelessly as well. However, overall turnover and valuations, which depend on market liquidity, remained low, resulting in the subdued performance of the Hong Kong IPO market in Q1 2024,” adds Robert Lui, Southern Region Hong Kong Offering Services leader of the Capital Market Services Group, Deloitte China.

In 2024, the CMSG forecasts that the A-share IPO market will have about 115 to 155 new listings raising approximately RMB139 to RMB166 billion, which will be lower than previously forecast and with every market hosting fewer IPOs. The main boards in Shanghai and Shenzhen will have 25 to 35 newly listed companies raising RMB74 billion to RMB84 billion, followed by 35 to 45 new listings raising RMB30 billion to RMB37 billion on ChiNext. The SSE STAR Market is anticipated to have 20 to 25 new listings raising RMB28 billion to RMB35 billion. Beijing Stock Exchange is forecast to have 35 to 50 IPOs raising RMB7 billion to RMB10 billion.

“The regulatory measures released in mid-March will help to further enhance the quality of issuers and ultimately the quality of the A-share market. The pace of listings will inevitably be affected for the time being. However, it will be healthier for the market in the long run, particularly by setting a higher benchmark for the market, delivering more benefits from the stock market to the overall economy and contributing more to economic growth,” says Tony Tang, A-Share Offering leader of the Capital Market Services Group, Deloitte China.

In Hong Kong, the CMSG’s 2024 forecast is for 80 IPOs raising HKD100 billion, backed by anticipated Chinese economic stimulus measures; ongoing stock market reforms including enhancements to listing regimes, transaction mechanisms and the Connect program between the Chinese mainland and Hong Kong; slowing A-share IPO activity; and expected US interest rate cuts. Market highlights will include listings by prominent companies, de-SPAC transactions, international and Chinese companies that switch their listing plans from the A-share market to Hong Kong, and GEM companies.

“Amid speculation of potential delays in the US interest rate cut timetable, we remain optimistic towards the outlook and performance of the Hong Kong IPO market in 2024. We have seen an increase in listing applications, particularly from artificial intelligence, life science and health care industries, which are important, high-potential sectors,” adds Edward Au, Southern Region managing partner, Deloitte China.

“Although many potential issuers are waiting for market valuations to rebound, some companies are committed to listings in Hong Kong despite the current environment, driven by pressing fundraising needs to support their business development. Hong Kong remains a top choice for listings due to its standing as an international financial center, numerous unique strengths and fundamentals and ongoing market reforms.”

As A-share IPO activity continued to slow in Q1 2024, Chinese companies remained active in listing in the US. Although the number of new listings was flat year-on-year, more funds were raised due to the mega listing by a consumer business. In the first three months of 2024, 13 Chinese companies were listed raising US1.467 million, versus 13 IPOs raising USD553 million in Q1 2023.

“The US IPO market for Chinese companies is going to face a similar fate as the Hong Kong market, with more companies that had planned to list in the Chinese mainland diverting to the US instead to raise funds in a more timely manner. This will of course be subject to the receptiveness of US investors towards the business models, sustainability and industry sectors of these potential issuers. But we expect most of the Chinese companies completing their listings in the US before the US Presidential Election this year,” says 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 2024, includes listings from real estate investment trusts and excludes listings from by investment trust companies, closed-ended investment companies, closed-ended funds, and special purpose acquisition companies.

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 global and US IPO (Chinese companies) statistics: Shanghai Stock Exchange, Nasdaq, the Stock Exchange of Hong Kong, National Stock Exchange of India, Bloomberg, Dealogic and Deloitte analysis.