Money raised in Hong Kong's capital markets sank to its lowest level in years during the first six months of 2013 - even as debt sold on the mainland jumped this year - as the deteriorating investment outlook weighed on Asia's most vibrant financial centre.
The city's local-currency bond market measured by Hong Kong dollar issuance posted the lowest first-half level since 1998. Meanwhile, China's domestic bond markets - which are by and large closed to foreigners - were buoyant as issuers switched to raise debt. The initial public offering venue has been effectively shut since October.
The outlook for capital raising in Hong Kong remains challenging as the deteriorating outlook for China's credit crunch hurt market sentiment. Chinese shares suffered more volatility yesterday and the seven-day repo rate - regarded as the key indicator of market liquidity - remained about double its normal level.
Given the prospect of a slowing supply of cheap money from quantitative easing in the US, market participants are rethinking the growth prospects of Chinese markets after early factory data fell to a nine-month low.
In the first six months, capital-raising activities in Hong Kong's equity market fell 20 per cent to US$19.5 billion from the same period last year, the lowest level since the first half of 2010, when the market strongly recovered from the global financial meltdown.
The lacklustre performance this year was largely owing to a significant slowdown in secondary offerings including rights issues, block trades and the big-ticket club-style deals that are targeted at select investors.
Companies raised US$4.5 billion in 21 deals for the first half, thanks to two state-controlled firms - China Galaxy Securities and Sinopec Engineering - which raised a combined US$2.9 billion, or 64 per cent of the overall proceeds raised so far. Offerings of convertible bonds - which pay investors interest like a bond but can be converted into stock under predetermined conditions - rose 78 per cent to US$636.6 million in two deals.
According to Thomson Reuters data, Goldman Sachs ended on top of the semi-annual equity league table in Hong Kong again, raising US$5.5 billion in 14 deals.
The self-led sale of about US$1.1 billion worth of Hong Kong-traded shares in Industrial and Commercial Bank of China helped secure the crown.
UBS remained second and Morgan Stanley moved up one notch as the second runner-up.
Investors are fretting over a credit crunch in China and uncertainty over the US central bank's plans for tapering off the monetary stimulus programme. The city's benchmark Hang Seng was down 20 per cent since its peak in January, denting listing hopefuls expectations of raising money.
In the interest-rate sensitive bond market, Hong Kong's local-currency bond market dropped 51.6 per cent to HK$38.6 billion for the first six months, posting the worst half-year issuance since 1998, despite robust activity in China and local markets.
The dim sum bond market - the offshore venue for Chinese currency investment - showed signs of strength this year, after a subdued 2012. Companies including British banks and Chinese property developers raised 109.7 billion yuan, up 20 per cent year on year. Cash-strapped real estate firms raised the biggest portion of the capital in the dim sum market, with capital raised soaring by 268.5 per cent.
HSBC led the debt underwriting league table for new issuance of Hong Kong local currency and dim sum bonds, followed by Standard Chartered.