Chinese Mainland and Hong Kong IPO markets to remain resilient amid recent market turbulence
- High-growth, new economy companies to remain most sought-after investments
- Ample liquidity to continue to support IPO activities
- Reforms in both markets are to enhance fundraising opportunities and listing environment
Published: 7 April 2021
According to a review of the Chinese Mainland and Hong Kong initial public markets in Q1 2021 with outlook released by the National Public Offering Group of Deloitte China today, the two markets are well supported to continue to perform vibrantly in the rest of 2021, thanks to the ample liquidity from various monetary and economic easing measures in the world to dissipate the negative impact brought by the ongoing pandemic. High-growth, new economy companies will still be the most well-received investments given their important roles demonstrated during the pandemic. But, in general, as investors deepen their understanding about the new economy businesses, their valuations are expected to return to a more reasonable level.
The ongoing reforms in the listing regimes and capital markets, including enhancements to the listing regime for overseas issuers, the potential launch of listings of special purpose acquisition companies (SPACs), the revamp of Hang Seng Index constituents, the merging of Main Board and Small and Medium Enterprise Board in Shenzhen, enhancements to the Shanghai-Hong Kong Stock Connect, and pilot registration-based regimes for ChiNext and SSE STAR Market will improve fundraising opportunities and the listing environment for fast-growing technology businesses in particular.
The report also finds that Nasdaq has taken over the global IPO leadership in terms of number of IPOs and funds raised in Q1 2021 at the boost of positive market sentiment over the US economic outlook, listings of health care, pharmaceutical and biotech companies, and three mega listings. The Hong Kong Stock Exchange came second with its three jumbo deals, followed by the New York Stock Exchange and London Stock Exchange. The Shanghai Stock Exchange took 5th place.
As at 31 March 2021, Hong Kong recorded 32 new listings, raising in all about HKD132.8 billion, a record high in terms of IPO funds raised in the first quarter over past years. This indicates a 14% fall in number of IPOs, but an 842% surge in proceeds against 37 IPOs raising HKD14.1 billion in Q1 2020. Nearly 70% of funds raised in Q1 2021 came from three very large IPOs with weighted voting right (WVR) structures. Two of them were secondary listings.
"We are excited to see the heating wave of Hong Kong's IPO market in 2020 continued and hit a new record with its funds raised in Q1 2021. This is benefited from a strong support from new economy IPOs which contributed nearly 90% of these funds. This shows that investment appetite is transforming and that there is continuous enthusiasm among China concept stocks to list in Hong Kong so as to divert their fundraising platforms into more capital markets. Hong Kong's success as an international financial center, in particular in luring and retaining inflowing capital, is well recognized among businesses and funds," says Edward Au, Southern Region managing partner, Deloitte China.
In Q1 2021, the Chinese Mainland recorded 100 IPOs raising RMB76.1 billion in total against 51 new listings raising RMB78.1 billion in Q1 2020. While the number of new listing rose 96%, the proceeds dropped by 3%. Shanghai continued to lead Shenzhen in both number of IPOs and funds raised. Shanghai saw 57 new listings in total having raised RMB52.4 billion, while Shenzhen reported 43 IPOs and RMB23.7 billion in fund raised.
"The benefits of the pilot registration-based regime in ChiNext is magnifying and the SSE STAR Market is demonstrating a stable performance. As such, we noticed IPO paces in the two markets increasing over the quarter, yet fundraising scale appeared to have dwindled," adds Dick Kay, Leader of the Deloitte China National Public Offering Group.
Despite a bill that governs more stringent oversight over foreign company listings, the sentiment over the outlook of the US economy improved driving more Chinese companies, in particular in cloud-computing and technology service-related, went public in the US in Q1 2021 The market had 20 IPOs from Chinese companies raising USD4.37 billion, spiking 233% and 1,081% in number of new listings and funds raised respectively. In Q1 2020, merely 6 IPOs were completed having raised USD370 million.
The National Public Offering Group maintained its forecast for Hong Kong IPO market in 2021. That represents about 120-130 IPOs in 2021 raising more than HKD400 billion. This is backed by economic easing measures bracing strong liquidity to seek high return in the market through investment funds and vehicles, also the continuous wave of secondary listings of China concept stocks in the US, and listings of new economy companies, including those in the biotech sector.
"As the pandemic is still lingering, we believe abundant liquidity will continue to be available for high-return investments until the macro-economic fundamentals, such as inflation, return to strong growth. At the same time, market intelligence and from the pipeline we know that the China concept stocks in the US and many new economy companies are still keen to list in Hong Kong. The ongoing reform efforts such as the listing regime reform for overseas issuers in Hong Kong and the potential launch of SPAC listings are making Hong Kong an even more attractive listing venue. We truly believe in 2021 Hong Kong has the capability to raise more than nearly HKD450 billion that it did in 2010," says Kay.
The report sees the SSE STAR Market and ChiNext leading growth in the Mainland IPO market in the rest of 2021. The SSE STAR Market is forecast to have about 150-180 IPOs raising about RMB250 billion-RMB300 billion; 140-170 companies could go public on ChiNext, raising RMB140 billion-170 billion, whereas the Main Boards in Shanghai and Shenzhen are likely to have about 120-150 new listings raising RMB130 billion-RMB170 billion. Most of the new listings will come from small and medium issuers among manufacturing and technology companies.
"Although we will see a growing number of new listings, the average deal sizes across most markets have reduced. While the market is expanding, the authorities have strengthened information disclosure of listing applicants to ensure and cultivate a healthy capital market for all players," concludes Kay.
Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as at 31 March 2021.
Sources for Hong Kong IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis; excludes GEM to MB transfers.
Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, Shenzhen Stock Exchange, Deloitte estimates and analysis.
Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, Nasdaq, Bloomberg and Deloitte estimates and analysis.