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Investors' long love affair with Hong Kong equities is hitting a rough patch.
This year, funds raised from initial public offerings in the city will be just 25 per cent of the issuance seen in the market's best year in 2010, according to Thomson Reuters.
Equity fundraisings (including initial public offerings, block deals and convertible bonds) will be about half the level of the five-year average. Trading on the exchange is about two-thirds the volumes of the peak seen in 2008.

The slowing market has had its casualties - a number of brokerages have exited Hong Kong in recent years, including Piper Jaffray, Samsung Securities, Mirae Asset Securities, Renaissance Capital, MF Global and RBS.
Hong Kong's lacklustre year for equities is notable in relation to other markets. The United States market keeps setting new records and is up 21.8 per cent so far this year, while Japan's Nikkei-225 Index has risen 45.9 per cent. The Hang Seng Index chugs slackly behind, with a gain of 1.66 per cent.
Somehow, with oceans of money sloshing around the planet, thanks to monetary stimulus in Japan and the US, Hong Kong has managed to totally miss the party.
"Hong Kong has been in the doldrums since 2008-09," said Andy Maynard, a global head of trading and execution at CLSA.
Maynard said Japan was most recently to blame for Hong Kong's sluggish trading volumes. The Japanese market had risen so sharply it had drawn money from Hong Kong. "Hong Kong's demise is Japan's rise," he said.
A slow listings market has also had its effect. The primary market fuels the secondary. There is blitz of trading generated by new listings as investors buy and sell fresh deals and as indices get reweighted. So when listings drop, so do trading volumes.
Hong Kong is having a slow year for initial share sales, partly due to a three-month shutdown that happened after US Federal Reserve chairman Ben Bernanke hinted on May 22 that he would wind down monetary stimulus, which spooked investors.
"You had an inflection point in May when Bernanke talked about the possibility of tapering," said Damien Brosnan, the head of Asia equity capital markets syndicate at UBS.
There are also thematic factors. Equity investors are currently favouring developed markets at the expense of emerging markets.
"US investors see China as just one part of emerging markets, and right now the interest is in developed markets," said Philip Li, a fund manager at Value Partners.
Investors have been much more focused on high-yield bonds in recent years. Low interest rates have sent many people looking for high fixed returns that protect against inflation.
Of the three fund types - equities, balanced funds and bonds - tracked by the Hong Kong Investment Funds Association, equities ranked at the bottom in terms of gross sales to investors in the year to date.
But that is just the normal ebb and flow of market cycles. There are more entrenched structural factors that weigh on Hong Kong equities.
First is the slowdown in the mainland's economic growth, which is expected at 7.5 per cent this year, compared with the average 10.4 per cent seen in the past decade, according to World Bank data.
"People are so used to having such stunning macro [mainland] data if it's not so impressive, it's a negative. Hong Kong gets affected by that," Maynard said.
But the most troubling aspect of the Hong Kong equities industry is the lack of large offerings. The mainland's big privatisation push came in the past decade, when its Big Four state banks listed, alongside insurance and energy companies.
Industrial and Commercial Bank of China was the world's biggest stock offering when it listed in Hong Kong and Shanghai in 2006, raising US$21.9 billion. It was beaten by Agricultural Bank of China's 2010 float, which raised US$22 billion.
The past decade has been a great time to be a listing banker in the city, but the boom times have run their course. The mainland has listed almost every large business it owned as it moved to a more market-oriented economy.
These large listings could not fail for political reasons - any pulled deal was embarrassing and it imperilled the privatisation agenda. So the deals were priced at least a little bit cheaply and they generated a lot of interest in Hong Kong equities.
"Most of the bigger deals have been done … now we are getting into regional banks and more consumer names that are generally small in size," said a head of equity sales at a mainland bank.
It's telling that the imminent US$2.5 billion offer by Cinda Asset Management is likely to be Hong Kong's biggest listing of the year. It is a large deal, but modest when compared with the stream of giant state-owned listings seen in previous years.
"Many, though not all, of the biggest IPOs have already taken place in years past," said Brosnan. "The number of small IPOs will increase, but not that of mid to large-sized ones, because there are not as many left to list."
As the state-owned enterprise pipeline recedes, privately owned firms will increasingly drive the city's listing calendar. These deals will be priced more dearly as vendors' main objective with the offers will be to cash out and get rich.
It will be less interesting to investors, but that is the direction Hong Kong is going.


Hong Kong equities face midlife crisis as trading loses steam

Business

Money

Markets & Investing

Slowing mainland economy and smaller IPOs blamed for lacklustre performance


Investors' long love affair with Hong Kong equities is hitting a rough patch. This year, funds raised from initial public offerings in the city will be just 25 per cent of the issuance seen in the market's best year in 2010, according to Thomson Reuters.


Hong Kong equities face midlife crisis as trading loses steam

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Slowing mainland economy and smaller IPOs blamed for lacklustre performance

Slowing mainland economy and smaller IPOs blamed for lacklustre performance