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Against the odds, Hong Kong is back challenging for the top of the listing league tables this year. That’s a sharp reversal from the stalled pipeline and investor exodus of just two years ago. It is reasonable to question the sustainability of this momentum, but the comeback still challenges assumptions about the city’s financial decline.
Companies have raised $13bn from new listings in the Asian financial hub this year, according to Dealogic, leaving it second only to Nasdaq and well ahead of the New York Stock Exchange and its Chinese peers. Total fundraising is expected to reach HK$200bn ($25.5bn) this year, Deloitte’s team reckons. Meanwhile, newly listed shares have returned an average of 35 per cent.
The biggest driver of this surge has been big Chinese companies seeking secondary listings in Hong Kong — not technically IPOs but local debuts nonetheless — including electric battery giant CATL, which raised $5.3bn. Tighter scrutiny and prolonged approval timelines on mainland exchanges have pushed many companies to Hong Kong for quicker access to capital. Local floats last year took an average of 432 days from filing to listing last year, according to Dealogic.
Geopolitical dynamics have also played a significant role. As US regulators increase scrutiny of Chinese companies and delisting threats continue to loom over those traded in New York, many mainland companies are opting for Hong Kong as a politically safer venue for global capital.
There is plenty of demand. Local retail investors, discouraged by a sluggish property market and supported by margin lending, have piled into IPOs chasing quick returns. Leverage has amplified this frenzy with the retail portion for toy company Bloks Group oversubscribed by more than 6,000 times, for example, while food and beverage group Mixue exceeded 5,000.
Yet this retail rush does not necessarily point to an overheated market. Even after a 37 per cent gain in the past year, the Hang Seng index trades at just 10 times forward earnings, a level that remains historically cheap and significantly lower than comparable US benchmarks.
More importantly, there are signs that institutional investors are tentatively returning after years of retreat. Ping An Insurance Group, along with other major Chinese insurers, has increased its exposure to Hong Kong-listed financial stocks since late last year, betting that high dividend yields will offset the impact of shrinking margins.
Certainly the recent rebound owes something to retail speculation and geopolitical arbitrage. But to dismiss it is to overlook the changing dynamics under way. This year shows Hong Kong continues to hold appeal as a gateway for Chinese capital and a bridge for international investors seeking exposure to Chinese growth without the hassle of investing onshore. That role remains difficult to replicate.
june.yoon@ft.com