IPOs return to Hong Kong after slow summer, but trade war, protests could rain on market sentiment, experts say
- ESR Cayman, Anheuser-Busch InBev have revived shelved listings in Hong Kong
- Improved investor sentiment could extend the window for new listings, according to Credit Suisse
After months of bruising protests in Hong Kong’s streets and escalating tensions between two of the city’s biggest trading partners, companies are starting to feel comfortable enough to return to Hong Kong’s financial markets.
Logistics real estate developer ESR Cayman and Anheuser-Busch InBev both announced plans this week to revive initial public offerings that were shelved over the summer amid weak investor sentiment.
Home Credit, a consumer finance lender that counts China as its biggest market, has begun speaking with institutional investors in recent weeks ahead of its planned US$1 billion listing in Hong Kong later this year. It would be one of the biggest IPOs in Hong Kong this year.
Those listings, if they perform well, could open the door for more IPOs in what has been an exceptionally slow summer for the Hong Kong stock exchange.
But, the question remains how long the window will remain open, particularly if the trade war between the United States and China reignites, investment strategists and market observers said.
“There’s an improving window of opportunity in terms of investor sentiment and appetite, which I think companies will seek to take advantage of,” said John Woods, Credit Suisse’s chief investment officer for Asia-Pacific. “I suspect improving sentiment could extend beyond a short term ‘window’ and could actually shape risk appetite for the duration of the year. If that is indeed the case, I think we could see more IPOs in the coming months”.
Trade war, economic gloom ‘making Asian investors more cautious’
The US and China have been locked in a trade war for more than a year, with Washington and Beijing placing tariffs of up to 25 per cent on hundred of billions of dollars of each other’s products.
Through Friday, the value of IPO proceeds in Hong Kong fell 63 per cent to US$10.8 billion, compared with US$29.6 billion in the same period in 2018, according to data from financial information provider Refinitiv. The number of deals declined by 37 per cent to 89 transactions this year.
Since news emerged the bill would be formally withdrawn, the benchmark Hang Seng Index has risen 7.9 per cent.
Marcella Chow, global market strategist at J.P. Morgan Asset Management, said increased IPO activity would be “positive news” for the market, but equity values in Hong Kong still remain attractive to long-term investors.
“Hong Kong’s equity market dynamics are largely driven by ongoing trade tensions, global growth worries and easing by key central banks,” Chow said. “While the immediate Hong Kong situation remains unclear, long term investors should continue to focus on the intrinsic values of companies in Hong Kong and invest accordingly.”
The price-to-earnings ratio of the MSCI Hong Kong Index continues to trade at 13.7 times, below the 15-year average of 15.4 times, Chow said. The ratio indicates the dollar amount an investor can expect to invest in a company to receive a dollar of that company’s earnings.
Against the backdrop of the trade war and protests, Hong Kong’s economy has weakened, with the city cutting its growth forecast to zero to 1 per cent for 2019. Several economists have said they expect the economy to contract this year.
“We expect growth to weaken materially in [the third and fourth quarter] on the back of local instability and escalated US-China trade tension,” Bank of America economists Helen Qiao and Miao Ouyang, said in a recent research note. “In addition, even if business returns to normal level in the upcoming months, we are concerned that tourist arrivals and business confidence is likely to remain weak for a prolonged period.”
Alibaba reportedly delayed its plan for a US$15 billion listing in Hong Kong last month. Alibaba is the parent company of the South China Morning Post.
“The general market sentiment is getting better over a short window,” Choi said. “Some sectors are still better than others.”
But further negative news about the US-China situation could “heavily affect” sentiment, he said.