Hong Kong’s revival as a global IPO hub faces challenges – and it will be no panacea for the economy
- Both Shanghai and Shenzhen have become leading centres for IPO listings, while Switzerland’s equity market has also emerged as an attractive option for Chinese companies
- As a leading international business hub, Hong Kong’s equity market growth will play an important part in economic recovery. But the city’s entire future doesn’t depend on it
In reality, Fortune’s question was melodramatic. The stock market is an important contributor to the Hong Kong economy as a component of our financial services sector in general – the entire sector accounts for more than 20 per cent of GDP and about 7.5 per cent of jobs. However, it is nowhere near so critical that our entire future depends on it.
This is probably a good thing. Hong Kong’s economic recovery and the task of strengthening our stock market and its role as a capital-raising hub are likely to be a painfully protracted process.
Equity markets last year had one of their most dreadful years on record. The S&P 500 fell by 19.4 per cent and the Nasdaq by almost 34 per cent. In China, the Shanghai and Shenzhen indices fell 15 per cent and 21 per cent respectively. The only large index to end the year in positive territory was London’s FTSE, up a meagre 1.2 per cent.
As the valuation of listed companies fell across the world’s leading markets, interest in raising equity capital shrivelled as companies interested in IPOs put their plans on hold. Global IPO proceeds that had surged to more than US$600 billion in 2021 – US$350 billion in the US markets and US$168 billion in Asia – slumped by 90 per cent in the US and 70 per cent in Asia.
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Here in Asia, the US-China trade war and its impact on regional supply chains continues to make international companies hesitate on international business expansion plans. Even inside China, uncertainty over regulators’ treatment of companies looking at international expansion is prompting many to put their fundraising plans on hold.
More idiosyncratically, Switzerland’s SIX equity market has emerged as an attractive locus for Chinese companies looking to expand their international business. Since regulatory agreements last July, nine Chinese companies have listed and raised around US$3.2 billion, with the EV battery-maker Contemporary Amperex Technology soon expected to raise global depository receipts there.
Aguzin might be too optimistic about the speed of Hong Kong’s recovery, and Fortune magazine might be overhyping his role in “saving” Hong Kong’s economy. Nevertheless, it remains likely that as international capital-raising activity revives, Hong Kong’s leading role as a global IPO base will remain strong, in particular for Chinese companies.
Mainland companies already make up around three-quarters of the HKEX market capitalisation, and it would be surprising if large numbers of them did not continue to use their long-standing international home in Asia to underwrite future international growth plans. But Aguzin would certainly be foolish to take that for granted.
David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades