Conditions bode well for Chinese Mainland and Hong Kong IPO markets in Q4 2021

Published: 24 September 2021

Deloitte China's Capital Market Services Group, a new, multidisciplinary group dedicated to delivering capital market services and solutions, today releases its latest analysis of the performance of Chinese Mainland and Hong Kong initial public offering (IPO) markets in the first three quarters of 2021.

By 30 September 2021, Shanghai Stock Exchange is expected to have claimed 3rd place in the ranking of global stock exchanges by IPO proceeds, followed by Hong Kong Stock Exchange in 4th place and Shenzhen Stock Exchange in 5th. Nasdaq and New York Stock Exchange are set to have taken a substantial lead in 1st and 2nd place, with many more larger deals.

IPO activity in the Chinese Mainland and Hong Kong, particularly the latter, have been hit by heightened scrutiny and restructuring efforts in certain sectors of China's economy, including new economy companies that handle large amount of data, education, and real estate. This has cut valuations of companies and issuers in these sectors, and Chinese companies – in particular those with variable interest entity structures – face additional challenges when trying to list in the US. These factors, coupled with lingering geopolitical tension, have created opportunities for Chinese companies to rethink their listing strategies and many now consider Hong Kong their top choice of overseas listing destination.

Although the Hong Kong market's performance has been slow in Q3, the liquidity provided by various monetary and economic easing programs, a strong IPO pipeline including mega primary dual and new economy listings, and its developing ecosystem for nurturing technology companies, are set to continue to support its robust performance over the remainder of 2021. At the same time, the establishment of a new stock exchange in Beijing as part of the deepening of Mainland capital market reform should drive sentiment and confidence among younger innovative Chinese companies to gain access to the capital market.

Hong Kong is expected to have seen 73 IPOs raising about HKD288.5 billion in Q3 2021. Although this will mean IPO volume is down 26% from Q3 2020's 99 IPOs, proceeds will have risen about 37% from HKD211.4 billion. More than 60% of the proceeds will be from mega deals. A majority of deals will have involved companies in the new economy and those with weighted voting rights (WVR) structures.

"We have been delighted to see weighted voting rights structures become so well received by investors in such a short period of time since the WVR regime was introduced, with deal volume and value having risen from last year's level. This demonstrates the advantages of Hong Kong's ecosystem for technology and innovative companies and connectivity with the Mainland in capital markets and regulation," says Dick Kay, Offering Services leader, Capital Market Services Group, Deloitte China.

The A-share market is expected to have recorded 373 IPOs raising RMB370.4 billion in the first three quarters of 2021, versus 294 new listings raising RMB355.7 billion in the same period of 2020. Shanghai will have seen about 200 new listings raising around RMB264.0 billion, with Shenzhen set to have had 173 IPOs raising about RMB106.4 billion.

"The Chinese new listing market performed steadily in Q3 2021 and outperformed the same period of 2020. As a result of various reforms and regulators' effort to maintain a healthy capital market, there were more IPOs across all markets except the Main Board in Shenzhen, and growth in proceeds except for the SSE STAR Market in Q3 2021. By industry, the proportion of manufacturing sector IPOs increased as well," adds Tong Chuan Jiang, A-Share Offering leader, Capital Market Services Group, Deloitte China.

Chinese companies faced regulatory hurdles to go public in the US in Q3 2021, leading to no new listings in August or September 2021. However, due to several mega listings from the consumer and technology sectors in 1H 2021, there were more IPOs (up 64%) and more funds raised (up 58%) by Chinese companies in the US in Q3 2021 than in Q3 2020. The market is expected to have seen 41 IPOs raising USD14.7 billion in Q3 2021, versus 25 new listings raising USD9.3 billion in Q3 2020.

Deloitte China's Capital Market Services Group predicts that so long as there are no substantial changes to regulatory measures, the Hong Kong IPO market is well set to meet its forecast of about 110-120 IPOs raising nearly HKD400 billion by the end of December 2021, thanks to a long, and strong, pipeline of nearly 200 IPO applicants as of end-September, including primary dual listings and listings from new economy businesses.

"We anticipate Chinese companies will continue to face geopolitical challenges when devising their listing plans. Amid all these challenges, Hong Kong is still well-positioned to attract listings of Chinese businesses, especially technology companies. Given its unmatched advantages, including market breadth and depth, an international investor base, ample liquidity, free flow of capital, the maturity of its ecosystem for new economy companies, and ability to innovate and reform to embrace changes, Hong Kong will clearly remain the most favored overseas listing location for Chinese companies in the near and long term. Despite various market reforms in the Mainland, we anticipate many medium and large-sized Chinese IPOs will be completed in Hong Kong. In the longer run, it will become a more balanced platform for China concept stocks to raise funds and support their development," says Edward Au, Southern Region managing partner, Deloitte China.

With continuous growth in the number of new listings and IPO funds on the SSE STAR Market and ChiNext, the Capital Market Services Group predicts that most IPOs in 2021 will have come from these markets. The SSE STAR Market is forecast to have had about 160-190 IPOs raising around RMB170 billion-RMB190 billion; while 190-220 companies are expected to have gone public on ChiNext, raising RMB110 billion-RMB130 billion. The main boards in Shanghai and Shenzhen are likely to have seen about 130-150 new listings raising RMB190-RMB210 billion by the end of the year. At the same time, small and medium-sized manufacturing and technology businesses will continue to drive IPO volume.

"Many Chinese companies, especially younger, smaller ones, are excited about the plan to establish a new stock exchange in Beijing. This will create more fundraising and eminence building opportunities for them when they cannot meet the listing requirements of other markets in the region. Regulators have made many impactful reforms in recent years. We look forward to seeing the launch of this new stock exchange which will help companies reap the benefits of the capital market," concludes Tong.

Notes to editors:

Unless specified otherwise, all statistics are updated with our estimates and analysis as at 30 September 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 analysis.