Exclusive | JPMorgan says IPO markets in Hong Kong, mainland China set for turnaround as stock rallies reflate valuations and confidence

Stock benchmarks in Hong Kong and Shanghai have risen 26 per cent and 15 per cent respectively from their lowest levels this year
IPO pipelines signal better market outlook as companies become more comfortable with valuations, US bank says

Banking & finance

Daniel Renin ShanghaiandZhang Shidongin Shanghai

Published: 7:00am, 24 May 2024

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A bull run in Hong Kong’s stock market has helped raise valuations and improve sentiment among investors, feeding a recovery in fundraising activities on the local bourse and its peers in mainland China, according to JPMorgan.

As such, new listing candidates are becoming more reasonable about their expectations for initial public offering (IPO) pricing, according to Sjoerd Leenart, the US bank’s head of Asia-Pacific region. Capital-hungry technology start-ups are also likely to be a key growth driver in the primary market, he added.

“They are more realistic than they were before,” he said in an interview in Shanghai on Thursday, adding that most prospective listings in the pipeline were still not massive deals. “For some, the valuation now is good enough and they go to the market. For others, they will hope for more.”

He made the observations as the biggest US bank hosted more than 2,500 delegates and 1,300 companies at its Global China Summit in Shanghai against the backdrop of recent stock gains. The Hang Seng Index has risen 26 per cent from this year’s low on January 22, while the Shanghai Composite Index rallied 15.3 per cent from its February 5 low.

The Hang Seng Index has risen 26 per cent since hitting the year’s low on January 22. Photo: Jelly Tse

JPMorgan’s chairman Jamie Dimon and Microsoft co-founder Bill Gates are among the speakers at the two-day summit. Joe Tsai, co-founder and chairman of Alibaba Group Holding, owner of the South China Morning Post, shared his views on Thursday.

The rally in Hong Kong has added more than US$1 trillion (HKS$7.82 trillion) in capitalisation back to the stock market. Investors have said they were encouraged by policy support from Beijing, as well as portfolio rebalancing as fund managers scouted for better value and abandoned overpriced markets elsewhere.

Kam Shing Kwang, JPMorgan’s chairwoman for North Asia, said the rallies have given investors and companies greater comfort and confidence about the market outlook. A slew of supportive economic and market-friendly policies have also aided the pickup in activity.

Companies are eager to raise funds because markets have adjusted higher, says Kam Shing Kwang, chairwoman for North Asia at JPMorgan. Photo: Handout

“Market sentiment has improved and companies are also more eager [to raise funds], because obviously the markets have adjusted” to higher levels, she said at the summit. If the IPO pipelines are any indication, “we should be quite confident” that it will only get better, she added.

Gains may extend on the back of strong earnings from Tencent Holdings and Baidu, while Beijing offers greater support to overcome a three-year slump in the housing market. Hong Kong in February scrapped most of its decades-old financing curbs to boost property demand.

IPOs in Hong Kong, Asia’s third-largest market, have plunged almost 40 per cent to HK$8.2 billion (US$1.05 billion) so far this year from the same period last year, undermined by a record four-year losing streak in the Hang Seng Index through 2023. They tumbled by a combined 65 per cent in the first quarter to 23 billion yuan (US$3.2 billion) in Shanghai, Shenzhen and Beijing.

About 80 mainland companies have received approvals from the China Securities Regulatory Commission to raise funds via stock offerings outside mainland China, which mainly target bourses in New York and Hong Kong.

Officials from the Shenzhen and Shanghai stock exchanges, as well as those from the cities’ biggest companies, are doing roadshows in Europe to promote their markets and credentials.

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