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Hong Kong tops global IPO markets despite total funds raised sliding to eight-year low

Thomson Reuters data for 2016 makes Hong Kong the biggest IPO market worldwide, though total funds raised were way down on last year

PUBLISHED : Tuesday, 27 December, 2016, 3:33pm
UPDATED : Tuesday, 27 December, 2016, 10:24pm

Total funds raised in the Hong Kong stock market have dropped to an eight-year low but the city still ranks top as the largest IPO market worldwide, according to data from Thomson Reuters.

A combined total of just US$39.4 billion was raised in Hong Kong through initial public offerings (IPO), share placements, rights issues and other offerings this year, down 57 per cent from US$91.68 billion in 2015. It’s the lowest amount raised in the local stock market since the financial crisis in 2008.

The total funds raised in Hong Kong through IPO dropped by 26 per cent to US$24.35 billion, compared with US$33 billion last year.

It is, however, still enough for Hong Kong Exchanges and Clearing to rank No.1 among global IPO markets this year, the second consecutive year it has taken the top spot. The funds raised in Hong Kong, according to the data, beat Shanghai Stock Exchange in second place with US$16 billion and New York Stock Exchange on US$11.87 billion.

Shenzhen Stock Exchange’s ChiNext, the Chinese equivalent of the Nasdaq, ranked the 10th biggest IPO market worldwide, with US$3.99 billion raised.

Joseph Tong, chairman of Morton Securities, said the IPO market and other fund raising channels have been hurt by poor market sentiment.

“This year was full of surprises and uncertainties, with the Brexit vote result in June and Donald Trump winning the US president election. China’s economic slowdown and the weak yuan also hurt overall investment sentiment,” Tong said.

“The devaluation of the yuan has led Beijing to introduce measures to prevent capital outflow. This has slowed down the process for companies and individuals to bring their money out of the country to invest in a new listing or any share placement in Hong Kong.”

The average daily market turnover this year stood at HK$67.396 billion, down 36 per cent from HK$105.63 billion last year, according to HKEX statistics.

Tong said the outlook is not optimistic either.

“The new US president Donald Trump will take office in January and his policies are still unknown. There will be a lot of presidential elections in many European countries. These uncertainties would hurt market sentiment and hence the funds raised in local stock markets next year,” he said.

Benny Mau, chairman of Hong Kong Securities Association, is also less than sanguine about the equity market funds likely to be raised next year.

“The US Fed has increased the interest rate this month and predicted it will increase the interest rate at least three more times. This is not going to encourage investors to buy new shares in the market,” he said.

With the yuan down almost 7 per cent against the US dollar this year, China in recent months has brought in curbs stopping companies taking large amounts of money out of the country.

“As the yuan is likely to continue to devaluate next year, it is inevitable that Beijing would continue to restrict the mainlanders or mainland companies from investing in the Hong Kong stock market. This has dried up turnover and made it harder to have many IPOs and placements next year,” Mau added.

The US Fed has increased the interest rate this month and predicted it will increase it at least three more times. This is not going to encourage investors to buy new shares in the market
Benny Mau, Hong Kong Securities Association

The Thomson Reuters data shows Chinese companies still dominated new listings in Hong Kong, representing 80.5 per cent of all funds raised through IPO.

Hong Kong’s ranking as the top IPO market this year is largely thanks to the mega listing of the Chinese state-owned Postal Savings Bank of China (PSBC). The lender listed in September to raise US$7.6 billion, which is the largest IPO globally this year and also the world’s largest IPO since Alibaba Group Holding’s US$25.0 billion record offering in 2014 on the New York Stock Exchange. Alibaba owns the South China Morning Post.

Hong Kong has three IPOs ranked in the top ten worldwide this year by funds raised. Aside from PSBC, there was China Resources Pharmaceutical Group’s US$1.9 billion IPO in October and China Zheshang Bank’s US$1.9 billion listing in March.

But Hong Kong still lacks diversity in its IPO market. Financial companies represent 65.4 per cent of all IPO funds raised in Hong Kong, with the health care sector second at 9.4 per cent, industrials at 6.8 per cent, and consumer products and services sector ranked fourth at 4.1 per cent.

High technology firms only ranked fifth at 3 per cent.

Tong said Hong Kong’s stock market would need to diversify to attract more new listings.

“Many banks and traditional industrial players have listed in Hong Kong. HKEX should introduce a new board with more relaxed rules to attract more technology and new economy firms to list here,” he said.

Morgan Stanley was top among the investment banks underwriting all types of fund raising in the stock market with 11.3 per cent market share, followed by Haitong Securities on 5.9 per cent and Goldman Sachs on 5.4 per cent.

The bond market did well this year, with Hong Kong dollar-denominated bonds raising a total of HK$166.3 billion, or US$21.4 billion, an increase of 74 per cent from a year ago and the highest issued since 2007.

The yuan-denominated dim sum bond market dropped to 146.8 billion yuan this year, which is the worst since the market began in 2011 and down 17.6 per cent from last year. Mau said the devaluation of the yuan has made investors hesitant to invest in yuan products.

“The yuan is unlikely to bounce back next year although I believe the level of devaluation will not be substantial. This would affect the investors’ interest in buying dim sum bonds or other yuan assets. This trend is likely to continue for a while next year,” he said.

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