IPOs in Hong Kong could recover in 2024 as the global interest rate cycle turns and companies return to equities markets to raise funds for growth.
Companies raised $5.90 billion via IPOs in Hong Kong in 2023, a drop of 29% over the previous year, according to data from S&P Global Market Intelligence. The number of deals fell to 67 from 72. Nearly half of the IPO activity happened in the fourth quarter of 2023, when companies raised $2.89 billion via 26 transactions, the data showed.
Rates drag
Higher global interest rates and a slow recovery in mainland China dragged equity fundraising, but the "fundamentals of Hong Kong's capital market remain robust and resilient," said Irene Chu, a partner at KPMG China. Investor interest in AI, semiconductors and green technology will drive equity capital raising, Chu said.
Hong Kong slipped to 6th place among major stock exchanges in the world by the dollar value of total IPO funds raised, from 3rd in 2022, according to a ranking by KPMG.
Meanwhile, China's central bank held policy steady, despite some analysts' expectations of more stimulus for the world's second-largest economy, which grew 5.2% in 2023, near the 5% target, according to data from the country's National Bureau of Statistics.
"We believe a lot of Chinese companies are likely to consider launching an IPO in Hong Kong, and there is a rich IPO pipeline in the city, building a solid foundation for a better year for the Hong Kong IPO market in 2024," said Chen Yongren, the deputy head of Hong Kong investment banking Team at China International Capital Corp.
Small peak
There could be a "small peak" in IPO activity in the first quarter or first half as companies have had considerable time to review their fundraising plans and may be ready to launch, Chen said.
A likely first-quarter IPO candidate in Hong Kong could be Hangzhou-based cashless payment services provider Lianlian DigiTech Co. Ltd., a competitor to Ant Group Co. Ltd., which plans to raise funds to enhance its technological capacity and develop innovative solutions, according to a Jan. 11 company filing with the Hong Kong Exchanges and Clearing Ltd. The company has yet to disclose details about the timing of the IPO, or the amount of money it plans to raise.
IPO activity on the Shanghai Stock Exchangeand Shenzhen Stock Exchange, the two major bourses in mainland China, may remain slow in 2024 as the economy may take longer to return to its previous growth pace. Still, the two exchanges were the biggest fundraising venues in 2023, hosting 235 IPOs that raised a total $45.69 billion, or 38% of the global total, the data showed.
IPO fundraising in the two main bourses of mainland China fell 35% over 2022, while the number of deals was down 29%. By comparison, the global aggregate of IPO funds raised in 2023 was $120.31 billion, a decline of 34% over the previous year, according to Market Intelligence data.
Real estate downturn
China's economic recovery still faces headwinds, particularly a prolonged downturn in the real estate market. China's key stock index, the CSI 300, was among the worst performers among global benchmarks in 2023. The CSI 300 fell 11% in 2023, losing value for the third consecutive year.
The China Securities Regulatory Commission tightened IPO rules in August, seeking to smooth out the pace of new listings based on "scientific and rational decision-making" to balance the development of the primary and secondary markets. The move to regulate supply of stock is expected to help boost investor confidence.
The government's policy stance that led to lower deal volume in 2023 is likely to continue in the current year, industry experts said.
How long the securities regulator's policy stays in place will play a key role on China's 2024 IPO outlook, said Louis Lau, partner for capital markets KPMG China, at a Jan. 9 conference. But "these measures will foster long-term and sustainable growth of the A-share capital market," Lau said.
As of the end of 2023, the number of IPOs under review was at a two-year low of 779, according to KPMG, about 30% below its peak in the second quarter of 2022. "Of those, 68% belonged to the industrial and [technology, media and telecommunications] sectors," said Lau, and that indicates "a sufficient number to sustain IPO activities well into 2024."