HK expected to lose top ranking for IPOs amid global crisis

Fears over mainland China and Europe have led to a sharp drop in companies seeking to list in the city's stock exchange

PUBLISHED : Tuesday, 11 September, 2012, 12:00am
UPDATED : Tuesday, 11 September, 2012, 2:19am

Hong Kong is expected to drop out of the world's top 10 destinations for initial public stock offerings this year, after having held the top ranking for the past three years.

The worsening financial situation in the world, in particular growing uncertainties about the debt crisis in the euro zone, and the economic slowdown in mainland China, had already seen the city's stock exchange slump to its worst performance in attracting new listings in the past 10 years, said Edward Huang, a strategist with Haitong International.

In the first eight months of this year, new listings raised just under HK$43 billion, down 77 per cent from about HK$190 billion over the same period last year. The amount was also a 10-year low for the Hong Kong Exchanges and Clearing.

"Institutional investors favoured bonds over stocks, and low trading and investment amounts," Huang said.

This cautionary behaviour was the main factor behind the slump in new public stock offerings, he said.

In July, the South China Morning Post reported that many of the companies that succeeded in launching their initial public offerings earlier this year should have been thankful mostly to their so-called cornerstone investors, who subscribed to between 40 and 50 per cent of the share offerings.

More recently, the fund-raising situation worsened as many companies could not get enough cornerstone investors to commit to such take-ups before their public float.

"As a result, many companies postponed their listing initiatives. It has become so difficult to obtain [enough] stock subscriptions," Huang said, citing as examples China Everbright Bank and the People's Insurance Co (Group) of China, which have delayed their listing plans.

Paul Lau, a China partner with global accounting firm KPMG, said restoring the initial public offering market to the 2009-11 levels, when Hong Kong led the world's stock exchanges in terms of funds raised, would be a challenge.

Lau described the current market sentiment as the lowest since the 2008 global financial crisis.

According to Haitong's research, Hong Kong's global ranking has fallen to ninth in terms of funds raised from new stock offerings so far this year.

In comparison, despite the slow economic recovery and higher-than-expected unemployment in the United States, the country's two main stock exchanges - the New York Stock Exchange and Nasdaq Stock Market - are set to become the new global leaders. In Nasdaq's case, it has been helped by the US$16 billion float of Facebook, the world's largest online social network operator.

"Hong Kong's equity market however, is resilient," Lau said. "Once the market sees one or two successful IPO deals, sentiment is likely to pick up very fast.

"The market does not lack capital."

But before the market recovered, the Hong Kong government might have to also worry about a growing risk of capital outflow, Huang said.

"IPOs have always been an important platform for the Hong Kong market to attract overseas funds. However, the lower ranking [in terms of global IPO activities] may undermine the attractiveness of the Hong Kong stock market to overseas funds in the future," he said.