The market for initial public offerings in Hong Kong is expected to experience significant improvements over the next five years, according to George Chan, global IPO leader at EY. Despite the challenges posed by high U.S. interest rates, regulatory scrutiny, slower economic growth, and U.S.-China tensions in recent years, there is optimism about a positive trend emerging in the IPO landscape, particularly in the second half of this year.
Many of the macro trends that have hindered Greater China IPOs are beginning to turn around, offering support for more IPO activity in Hong Kong. One of the key factors contributing to this shift is the increasing number of U.S. dollar funds moving back to Hong Kong, as the city has already factored in the uncertainties that have affected mainland China and Hong Kong IPOs in recent years.
In June, China introduced new measures to promote venture capital and expressed support for IPOs, particularly in Hong Kong. This has led investors and analysts to monitor the speed of IPO approvals for indications of significant changes in the market. Consumer companies are expected to be among the near-term beneficiaries of IPOs in Hong Kong, as economic growth in mainland China remains satisfactory and consumers are willing to spend, especially in less developed areas of the country.
The Hang Seng Index has shown positive performance this year after four consecutive years of decline, signaling a potential turnaround in the market. Despite the challenges posed by high U.S. interest rates, adjustments in monetary policies by major central banks may create more favorable conditions for IPO investments. Hong Kong IPOs raised $1.5 billion in the first half of the year, a 34% decrease from the previous year, but expectations for a stronger performance in the second half are high.
The average first-day return of new listings on the Hong Kong stock exchange in the first half of 2024 was 24%, a significant increase from the previous year. This positive aftermarket performance, combined with an improving trend in IPO activity, suggests a promising outlook for the Hong Kong market in the next five years. Despite geopolitical uncertainties and economic challenges, there is growing confidence in the resilience and potential of Hong Kong as a hub for IPOs.
While early-stage investment in Chinese startups has faced obstacles due to slowing economic growth and geopolitical uncertainties, there is optimism about the future trajectory of IPOs in Hong Kong. Challenges such as data security rules and regulatory scrutiny on China-based companies listing in the U.S. are expected to be temporary, paving the way for more successful IPOs in the market. As market conditions continue to improve and investor interest grows, Hong Kong is poised to see a resurgence in IPO activity, with a focus on medium-sized deals and better market momentum expected in the coming years.
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