Deal making, IPOs set to slump in China and Hong Kong as trade war, civil unrest rage, says Baker McKenzie report

China’s inbound and domestic mergers and acquisitions are likely to fall by 18 per cent to US$248 billion in 2019, the law firm forecasts

In Hong Kong, total IPO transactions are forecast to plummet by 51 per cent to US$16 billion this year

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Anti-government protesters place paper cranes along the Avenue of Stars at Victoria Harbour in Tsim Sha Tsui. Four months of demonstrations have taken a toll on business sentiment. Photo: K.Y. Cheng

Published: 12:41pm, 14 Oct 2019Updated: 11:11pm, 14 Oct 2019

Deal-making and initial public offerings in China and Hong Kong are set to slump this year and next as the trade war and Hong Kong’s political crisis take a toll, law firm Baker McKenzie has predicted.

China’s inbound and domestic mergers and acquisitions are likely to plunge by 18 per cent year-on-year to US$248 billion in value in 2019, according to Baker McKenzie’s report published on Monday. That could decline further, to US$218 billion in 2020, the report showed.

In Hong Kong, total IPO transactions are forecast to plummet by 51 per cent to US$16 billion this year. The city’s M&A deals are also likely to drop by 2 per cent to US$43 billion, before tumbling to US$32 billion next year, according to the US-headquartered law firm.

“Deals are getting done, but the current slowdown is inevitable considering the continuing uncertainty around trade and regulation,” said Ai Ai Wong, chair of the company’s global transactional group, in a statement.

The downturn came as foreign buyers turned more cautious in the face of the prolonged US-China trade war and China’s slowing domestic economy, the law firm said.

On top of that, Chinese companies’ valuation expectations remain high, and international buyers face strong competition from domestic players, said Tracy Wut, head of M&A practice for Greater China at Baker McKenzie.

She expects an increase in deal activity in the future as China is gradually relaxing its restrictions on foreign investment in areas such as financial services.