Hong Kong can rule IPO market again

Having fallen behind Shanghai last year, the city’s financial services sector and regulators should work to attract talent and enhance the overall credibility of the listing market to attract high-quality companies

PUBLISHED : Monday, 08 January, 2018, 12:57am
UPDATED : Monday, 08 January, 2018, 12:57am

Just five years ago, if someone said Shanghai would overtake Hong Kong as a market for initial public offerings, most people would have laughed. But last year, it beat us for the first time, while New York took the top spot as the world’s premier IPO market. That should set off alarm bells if the city wants to maintain its status as a global financial hub. We must make sure this doesn’t become a declining trend. Our financial services firms and regulators must be flexible and adapt quickly.

Fortunately, many market players believe this year will see much improvement, both in the overall stock market and IPO listings in particular. For one, the stock market is anticipating a big boost from the so-called full circulation of H shares. The mainland is expected to lift the ban on major owners selling the shares of state-owned enterprises. This is expected to be a big boost to the H shares market in Hong Kong.

It’s Shanghai and not New York that Hong Kong has to worry about in the 2018 IPO stakes

A second major catalyst is the Hong Kong stock exchange’s overhaul of IPO rules, which will allow dual-class shares for listing companies.

The loss of Alibaba’s IPO to New York – which offers dual class-listing – in 2014 had been a painful lesson. The rule change will be especially congenial to hi-tech firms in Hong Kong, more of which are being listed at a rapid rate in recent years. In 2016, technology broke into the top five sectors for IPOs in fourth place, and rose to second behind finance last year.

Finance IPOs last year took up 36 per cent of share valuation, compared with almost 70 per cent in 2016. But during the same period, technology jumped to 20 per cent from just 3.4 per cent in one year. For the nine technology and internet IPOs on the main board, the average public oversubscription rate was 367 times, in contrast with the average of just 2.2 times for the eight finance IPOs on the main board. The enthusiasm of Hong Kong investors for tech IPOs is set to continue.

Hong Kong’s ‘father of red chips’ calls for review of decision that saw city lose Alibaba IPO in 2014

Among the more optimistic forecasts for 2018 is one by Deloitte China, which predicts a jump in the value of IPOs in Hong Kong by 25 per cent to 48 per cent. These translate to between US$20.65 billion and US$24.5 billion, compared with US$16.3 billion last year, the lowest since 2012.

It used to be that New York and London were seen as our biggest competitors. Now, Shanghai and Singapore are posing even bigger challenges.

To stay on top of the game, Hong Kong must learn to attract talent and enhance the overall credibility of the listing market to attract high-quality companies.