Hong Kong Set to Lose Top Three IPO Ranking

Hong Kong as an IPO hub is losing some of its shine, hit by concerns over escalating inflation, rising interest rates, falling stock prices, and China's never-ending zero-Covid policy. As a result, some analysts believe the city-state has almost no chance of being in a top-three place for worldwide IPO fundraising this year.

As of Q3, the top three global IPO fundraisers were the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the Korea Exchange (KRX), with Hong Kong (SEHK) trailing in fourth. Some think that a series of first-day price drops by high-profile IPOs took away any appetite for new shares

Hong Kong was always at or near the top of the global IPO fundraising ranks, but things have changed for the one-time leader. Hong Kong might not make the top three for new share listings this year as other Asian exchanges pull ahead.

In 2019 Hong Kong was top of the pile, raising almost $40 billion, but the trend has been downwards ever since, as the exchange dropped to second place in 2020 and slipped out of the top three in 2021. In the first half of 2022, SEHK dropped as low as ninth, as activity in the IPO arena slowed across the board. But the exchange climbed to fourth place by the end of Q3, helped by the return of mainland Chinese stocks from the U.S. and by other sizeable IPOs such as Tianqi Lithium and CTG Duty-Free.

The global stock market has been wildly unpredictable this year, with IPO fundraising down by more than half from last year's levels. By the end of September 2022, just over 990 IPOs had been completed worldwide, raising $145 billion. That was down 45% in quantity terms and represented a 58% drop in value from the year earlier. Still, China's IPO market is a highlight in this subdued picture. Shanghai and Shenzhen exchanges raised $75 billion, making up almost half the global fundraising and making them the two busiest markets this year.

As of the third week of September this year, Hong Kong Stock had raised $7.7 billion in IPOs or just 8% of Asia's total fundraising of $109 billion. That was Hong Kong's lowest since 1999, when it contributed just 6% of the region's total. In the last week of September, listings from Leapmotor Technology, MTT Group, and Onewo helped drive Hong Kong's IPO total to $9 billion in the first three quarters. But that still leaves HK in fourth place, behind Shanghai, Shenzhen, and Korea. Even if Hong Kong's IPO fundraising increases by another $4 billion in the last quarter, its stake of fundraising in Asia will still be the lowest for over two decades.

Shares in new IPOs have been having a hard time as global markets struggle, resulting in several debut-day drops. Taking newly listed MTT, Leapmotor, and Onewo as examples, their share prices were around 10% to 46% below their IPO prices as of writing. So investors have naturally been put off by the disappointing showing of the new stocks. That's likely why FWD Group, which was hoping to raise a substantial amount of cash, is believed to have suspended its listing until the first quarter of 2023. Meanwhile, Weilong Delicious, the popular Chinese spicy snack maker, may still go public this October, but its cash-raising target of $500 million will not be sufficient to raise Hong Kong's place in the IPO rankings.

Hong Kong had hoped to benefit from an inflow of Chinese companies leaving the U.S. exchanges. An estimated 300 New York-listed Chinese companies face the risk of delisting due to issues between the U.S. and Chinese auditing standards. To improve its appeal to these companies, Hong Kong relaxed its standards on dual primary listings and reduced the limits for returning U.S.-listed Chinese companies. So with greater flexibility, the market expected to see a boom in IPOs.

However, many Chinese companies with U.S.-listed stock suspended plans to move to Hong Kong after a deal between the U.S. and Chinese regulators about audits. The U.S. sent people to Hong Kong to look at the first batch of Chinese companies, which led to some other companies waiting for the audit results before making any further decisions, probably until 2023.