Key Takeaways:

• As of the third quarter of this year, the world’s top three IPO capital raisers were the Shanghai Stock Exchange, the Shenzhen Stock Exchange and the Korea Exchange, with Hong Kong lagging in fourth place
• Some analysts believe that a wave of first-day price drops by star IPOs has curbed investors’ appetite for new shares

By Ken Lo

Hong Kong used to reliably come first in the global IPO fundraising stakes, but the contest has gotten tougher for the onetime champion. This year the exchange will struggle to make it into the top three places for new share listings, as other Asian bourses pull out in front.

Back In 2019 the Hong Kong Stock Exchange reigned supreme in the global IPO arena, with nearly HK$309 billion ($40 billion) of fundraising. But the direction has been downhill from there, as the exchange slipped to second place in 2020 and fell out of the top three a year later, ranking only fourth.

Why has the Hong Kong Stock Exchange, once the king of the IPO market, lost its crown?

Still, China’s IPO market stands out as a bright spot in this muted picture. The stock exchanges in Shanghai and Shenzhen raised $74.5 billion in total, amounting to almost half the global fundraising figure and making them the two most active markets so far this year.

Fourth place so far for Hong Kong

How about the Hong Kong IPO market? Statistics from Bloomberg show that as of Sept. 22 this year, the Hong Kong Stock Exchange had raised $7.75 billion in IPOs, accounting for only 7% of Asia’s total fundraising of $108 billion. That was Hong Kong’s lowest share since 1999, when it contributed 6% of the region’s total.  Hong Kong’s status as a top Asia IPO hub is on the wane.

Newly launched shares have generally struggled as global stock markets including Hong Kong have been falling, as illustrated by an unusually high number of debut-day declines.

Taking newcomers MTT Group, Leapmotor Technology and Onewo Inc. as examples, the companies’ share prices were languishing around 11% to 45% below their IPO prices as of Monday. Investors have naturally been deterred by the underwhelming performance of the new stocks. That’s probably why FWD Group, which was seeking a large amount of capital, is reported to have shelved its offering until the first quarter of next year.

Meanwhile, Weilong Delicious, the Chinese maker of apopular spicy snack, has passed the listing hearing and may go public in October, but its fundraising target of $500 million is not enough to help the Hong Kong Stock Exchange make up the lost ground in the IPO stakes.

Hong Kong had been looking to benefit from an influx of Chinese firms departing from U.S. exchanges.  The market had estimated that nearly 300 New York-listed Chinese stocks would face the risk of delisting due to divergent auditing standards between U.S. and Chinese securities regulators.

To enhance its homecoming appeal, the Hong Kong Stock Exchange eased its rules on dual primary listings from January this year and lowered the threshold for the return of U.S.-listed Chinese stocks to Hong Kong. With greater flexibility for issuers seeking to list in both Hong Kong and the U.S., the market looked set to enjoy an IPO boom.

Absence of Big IPOs

Analysts expect investors to remain wary after new listings made weak Hong Kong debuts.

Kenny Wen, head of investment strategy at KGI Asia, noted that even star IPOs had faltered on their trading launch, including MTT Group, which plunged 27% despite being 150 times oversubscribed.

“Some companies, in view of the sluggish market conditions, would rather postpone their listing plans for fear of affecting the IPO valuation. And with no mega IPOs to be listed for the rest of the year, Hong Kong’s IPO market might not be able to return to the top three for the whole year,” Wen said.

The subdued IPO outlook was shared by Francis Lun, CEO of GEO Securities, as international firms back out of listing plans to avoid getting disappointing valuations, in the face of worries about the global political and economic climate, Hong Kong’s listless market and the impact of China’s zero-Covid policy.