The Hong Kong stock exchange is likely to drop out of the world's top 10 destinations for initial public offerings (IPOs) this year, after holding the No1 ranking for the past three years.
The worsening global financial situation, in particular growing uncertainty about the debt crisis in the euro zone and the economic slowdown on the mainland, have already seen the exchange slump to its worst performance in attracting new listings in 10 years, Haitong International strategist Edward Huang said.
In the first eight months of this year, new listings raised just under HK$43 billion, down 77 per cent year on year from about HK$190 billion in the first eight months of last year, and at a 10-year low for Hong Kong Exchanges and Clearing (HKEx) in terms of IPO activity.
"Institutional investors favoured bonds over stocks, and low trading and investment amounts," Huang said, and this cautious behaviour was a major factor behind the slump in the IPO market.
In July, the South China Morning Post reported that many of the companies that succeeded in launching IPOs earlier this year should have been thankful mostly to their "cornerstone investors", who subscribed to between 40 per cent and 50 per cent of the offers.
More recently, the IPO fund-raising situation has turned even worse as many companies could not get enough cornerstone investors to commit to such a take-up of shares before their public floats.
"As a result many companies postponed their listing initiatives. It has become so difficult to obtain [enough] stock subscriptions," Huang said, pointing to delays to IPOs by China Everbright Bank and the People's Insurance Company (Group) of China as two recent examples.
Paul Lau, a China partner with global accounting firm KPMG, said restoring the IPO market to the 2009-2011 levels when Hong Kong led the world's stock exchanges in terms of funds raised from new listings would be a challenge.
He described present market sentiment so far this year in Hong Kong as being down to the lowest since the onset of the 2008 global financial crisis.
According to research from Haitong, Hong Kong has fallen to ninth by funds raised in IPOs in the world 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 - are set to become the new global IPO market leaders. In Nasdaq's case, it had a little help from the US$16 billion float of shares in Facebook, the world's largest online social network operator in May this year.
"Hong Kong's equity market however, is resilient. Once the market sees one or two successful IPO deals, sentiment is likely to pick up very fast. The market does not lack capital," Lau said.
But before the market recovers, the Hong Kong government also may have to worry about a growing risk of capital outflow, Huang warned.
"IPOs have always been an important platform for the Hong Kong market to attract overseas funds. However, the lower rank [in terms of global IPO activities] may undermine the attractiveness of the Hong Kong stock market to overseas funds in the future," Huang said.