Q3 2019 Review and Outlook for Chinese Mainland and HK IPO Markets

Our latest research indicates that amid macro uncertainties and market volatility, the Hong Kong, Shanghai and Shenzhen stock exchanges are expected to place from 3rd to 5th in the global initial public offering (IPO) fundraising ranking for the first three quarters of 2019. The first two places should be taken by the New York Stock Exchange and NASDAQ, mainly due to their larger technology offerings.

Thanks to the launch of the Shanghai Stock Exchange (SSE) Sci-Tech InnovAtion BoaRd (STAR), the Mainland IPO market was more active in Q3. The Shanghai Stock Exchange continues to lead Shenzhen in number of new listings and proceeds raised.

In the Mainland, 4Q 2019 will see the launch of a new component index for STAR, and further reform of the registration-based regime, including its introduction to ChiNext. The debuts of Shanghai-London Stock Connect and the STAR Market, and the inclusion of A shares into more international indices earlier this year, should create a more diverse, more connected capital market.

Geopolitical developments caused global capital markets including Hong Kong to tumble during the first three quarters this year, deterring the listing plans of larger issuers, which require stable markets for book-building and deal completion.

However, several greenlit mega offerings are waiting to start their roadshows, and Hong Kong has a solid pipeline of listing applicants, so remains well-positioned to meet its full-year IPO fundraising forecast of at least HKD180 billion. This forecast assumes capital markets stabilize and warm up following key macro-economic events including Sino-US trade talks in early October.

The US IPO market for Chinese businesses continues to trend downwards. The absence of large new listings by technology and internet companies, uncertainties around the trade war and outlook for the US economy, and anticipation of the launch of STAR, attributed to declines in the number of IPOs, overall funds raised, and average fundraising size.

Hong Kong continues to seek listings from international companies and provide more Asia-Pacific investment exposure, so should attract Chinese new economy companies with large market caps, strong fundraising needs and international ambitions. There are excellent opportunities for the two capital markets to more closely complement and supplement each other in the long run, supporting healthy growth of the economy and these businesses.