Though uncertainties loom for the IPO market.
The volume of IPOs and funds raised in Hong Kong ensured it continued to rank first globally in the first half of 2016.
According to a release from PwC, due to pressure from slowing economic growth in China and weak economic recovery globally, combined with uncertainty over the UK referendum to exit the European Union (EU) and the pace of US interest rate hikes, overall market sentiment had been less than ideal.
However, IPO activities in Hong Kong continued their stellar performance in comparison to the London Stock Exchange in second place (total funds raised HK$31.6 billion) and the New York Stock Exchange in third place (total funds raised HK$28.8 billion), attesting to the firm leading position that Hong Kong continues to hold in global capital markets.
PwC anticipates more buoyancy in IPO activity in Hong Kong for the second half of 2016, especially in Q4 - the traditional peak season for IPO listings. Hong Kong’s fundraising market looks poised to take the top spot in the world.
Here's more from PwC:
In the first half of this year, there were a total of 40 new listings in Hong Kong, a 22% decrease compared to the same period last year. Total funds raised reached HK$43.5 billion - a 66% decline year on year. The main cause stemmed from global economic uncertainty, which dragged down overall fundraising through IPOs.
Added to this, volatility in China’s stock market earlier this year prompted investors and companies planning to list in Hong Kong to adopt a wait-and-see attitude, thereby affecting IPO investment sentiment and pricing, causing the Hong Kong IPO market to fall back in 1H 2016.
“Although there were some market fluctuations in Hong Kong in Q1, it improved in Q2. In 1H 2016, most IPOs on the Main Board were financial services companies, followed by retail, consumer goods and services, as well as industrial products,” says Eddie Wong, Partner of Capital Markets Services, PwC Hong Kong.
“With regard to funds raised in new listings, IPOs of financial services companies continued to lead the race, making up 84% of total funds raised on the Main Board. This reflects the fact that many mainland banks and financial institutions continued to actively pursue optimal timing to list in Hong Kong in order to raise capital and meet future development needs.
Based on this, we expect listings in Hong Kong for 2016 to continue their focus on financial services, with the chance of seeing a mega-IPO raising over HK$50 billion. The trend of financial services leading ahead is expected to extend from 2015 well through the whole of 2016.”
PwC estimates 130 new IPOs in the whole of 2016. However, total fundraising is forecast to fall from the HK$300 billion projected earlier this year to HK$220-250 billion, reflecting the impact of fundraising size reductions or changes in listing plans by large IPO projects.
However, PwC remains confident about Hong Kong’s IPO market in the second half – it is expected that total funds raised by IPOs in 2016 may enable Hong Kong to take the top spot worldwide.
“Regarding primary external factors, the UK’s decision to exit the EU may increase volatility in the global economy and cause investors to become more risk-averse. But, as Hong Kong IPO activity has relied on mainland enterprises in the past few years, the impact of external factors is relatively mild compared to other international stock exchanges.
As a result, we foresee that there will be little change in the number of businesses interested in going public in Hong Kong, but uncertainties in the global economy may continue to affect the possibility, pricing and performance of upcoming IPO launches.
Due to the impacts of Brexit, we believe there is much less chance of a US rate hike this year, and it will have limited impact on the Hong Kong IPO market,” says Benson Wong, Assurance Partner, PwC Hong Kong. “In spite of economic slowdown in the mainland, China is still expected to maintain a medium to high growth rate of 6-7% and continue to boost the expansion of domestic enterprises, as well as demand for financing.
In addition, we are of the view that the Shenzhen-Hong Kong Stock Connect should bring about profound and positive effects on both the China and Hong Kong stock markets if launched in the second half of this year. It would further reinforce the significant role of Hong Kong in the mainland’s multi-layered capital markets and its advantageous position as a fundraising platform facing the international markets with the backing of China.”
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