The market for initial public offerings in Hong Kong is expected to see significant improvement over the next five years, starting in the second half of this year. George Chan, global IPO leader at EY, mentioned in an interview with CNBC that while it may take a couple of years to reach the peak levels seen in 2021, there is a positive trend emerging. Factors such as high U.S. interest rates, regulatory scrutiny, slower economic growth, and U.S.-China tensions have previously hampered Greater China IPOs. However, recent indicators suggest that the situation is changing for the better.
EY’s report highlighted a sharp decline in listings in mainland China and Hong Kong, while the U.S. experienced a notable increase in IPO volume and proceeds in the first half of 2024. Despite challenges, many macro trends are beginning to shift, with more U.S. dollar funds flowing back to Hong Kong due to its ability to navigate uncertainties effectively. The recent positivity can be attributed to a reversal in the trend, with renewed interest from investors and companies considering Hong Kong listings over mainland China’s A share market.
Several factors are contributing to the growth of IPOs in Hong Kong, including new measures to promote venture capital in China and increased support for IPOs in the city. The presence of companies rooted in mainland China, where economic growth remains strong, has also been a driving force. Consumer companies are expected to benefit in the near term, especially as the economy recovers and consumer spending rises. These developments are crucial for attracting both local and global investors to the Hong Kong market.
Despite challenges such as high U.S. interest rates diverting investments to Treasury bonds, there is optimism that a slight reduction in rates could significantly impact the IPO market. The first half of 2024 saw a decline in IPO proceeds raised in Hong Kong compared to prior years. However, the positive momentum is building, with a surge in new listing applications and a growing pipeline of potential IPOs awaiting favorable market conditions. Strong aftermarket performance and investor interest are key components for the success of IPOs in Hong Kong.
The aftermath of the pandemic has presented unique challenges for IPOs, with economic uncertainties and geopolitical tensions affecting early-stage investments in Chinese startups. However, market sentiments are gradually shifting, and the number of IPO deals in Hong Kong is projected to increase in the second half of 2024. The average first-day return on new listings in the city has seen a significant rise, indicating improved market conditions. With anticipated medium-sized deals and better momentum in 2025, the future looks promising for IPOs in Hong Kong.
Amidst evolving regulatory frameworks and geopolitical uncertainties, there are hurdles to overcome in terms of IPO listings. Increased scrutiny on listings and data security rules create temporary challenges for China-based companies seeking listings overseas. However, with time and familiarity with the regulatory approval process, there is potential for large companies to consider the U.S. market as a viable option. As the market dynamics continue to evolve, navigating through regulatory hurdles and geopolitical tensions will be crucial for the success of future IPOs in Hong Kong.
The future of IPOs in Hong Kong holds great promise, with positive market indicators and growing investor interest paving the way for a resurgence in listings and deals. By capitalizing on supportive factors and market conditions, Hong Kong is poised to witness a significant uptick in IPO activity over the coming years.
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