What a difference a year has made at the Hong Kong stock exchange. After three consecutive years of being the No1 destination for companies raising funds through initial public offerings, the exchange looks likely to fall out of the top 10 this year.
Skittish investors, a slowdown in the Chinese economy and a weak global economic outlook have combined to smother demand for IPOs, which have powered the growth of the local exchange.
The collapse of the all-important flotation business comes as Hong Kong Exchanges and Clearing (HKEx) tries to remake itself by diversifying into commodities trading with its £1.39 billion (HK$17 billion) purchase of the London Metal Exchange.
Longer term, the mainland exchanges of Shanghai and Shenzhen pose a threat to Hong Kong's traditional equities business - and to its role as a global financial centre.
"When you look back, I think no one will disagree that the HKEx did have some great years and it has, in fact, grown stronger in terms of its ability to attract big-name IPOs, compared with its counterparts in New York or Europe after the 2008 financial crisis", which damped new listings in those markets, said a veteran investment banker who works with the HKEx on offerings and other equity-related business.
"But things have quietly changed this year. Many of our clients have begun to rethink their IPO plans for various reasons, including an unstable market environment, low valuations and the composition of potential investors," said the banker, who asked not to be named.
The listing of Chinese financial institutions, which grew out of Beijing's landmark banking industry reform that started in 2003, really gave the Hong Kong exchange a boost.
The country's four biggest state-controlled banks, including Industrial and Commercial Bank of China, now the world's largest bank by market value, have gone public in Hong Kong since late 2005, raising tens of billions of US dollars. At the end of last year, mainland companies accounted for 55 per cent of the Hong Kong market's capitalisation, up from 30 per cent in 2003.
Hong Kong still is widely considered the best gateway for foreign businesses to access the vast mainland market with its 1.3 billion population. And the Hong Kong exchange has attracted a number of multinational corporations, such as Italy's fashion label Prada, eager to raise their profile with Chinese consumers.
But in the first eight months this year, new listings on the exchange raised less than HK$45 billion compared with HK$190 billion in the year-ago period, marking a 10-year low in IPOs.
"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 activity] may undermine the attractiveness of the Hong Kong stock market to overseas funds in the future," Edward Huang at Haitong Securities International cautioned in a client note.
Others, too, think the easy days of IPOs may be behind the local exchange. They point to the increasing number of mainland companies that complain about the growing difficulty of raising money on the city's stock market as Hong Kong's tycoons become reluctant investors and international institutions, beset by other problems, are short of cash.
The heavier reliance on so-called cornerstone investors this year to ensure success of IPOs is telling. In recent months, they have been subscribing to up to 50 per cent of IPOs compared with 20 per cent, which had been the common industry practise.
"The IPO business in Hong Kong is getting less and less interesting. To some extent, it's like a private rather than a public fund-raising matter," said another banker with close business ties with the HKEx.
"It's all about how many cornerstone investors you can get, or you will fail to launch your IPO," he said.
That issue, the banker added, "has become a big concern for many mainland companies that are ready for IPOs as they don't want to feel like they are being hijacked by cornerstone investors just for the purpose of IPO launch," said the banker, referring to some tough or even under-the-table conditions often set by those investors as pre-conditions to taking part in the IPOs.
Meantime, the Shanghai Stock Exchange is moving ahead on a long-planned so-called international board so it can attract the likes of Coca-Cola and HSBC. The plan was put on hold this year but the Shanghai government recently said it wants to launch it as soon as next year.
In a spirit of co-operation, HKEx has established a business partnership and a new joint venture for research and data with the two mainland bourses. But industry watchers said such tie-ups will not necessarily decrease competition among the three rivals for IPO business.
Critics have charged that the HKEx is overpaying for the London Metal Exchange. But Charles Li Xiaojia, a former top banker for JP Morgan in China who is now chief executive of the HKEx, said the exchange must grab the rare opportunity to expand.
In August, when Li announced that HKEx's first-half net profit had fallen 14 per cent because of lower turnover and fewer IPOs, he said: "This is why we need the LME acquisition, which is a not a deal to bring in profit tomorrow, but to help the exchange establish a new business model with more diversified businesses ranging from equities to derivatives and commodities."
Additional reporting by Enoch Yiu and Jeanny Yu