The Hong Kong Stock Exchange (HKEX) is no longer in the top three global listing venues due to stringent COVID-19 measures and Beijing’s crackdown on private enterprises; analysts believe IPOs in Hong Kong are unlikely to recover in the short term.
According to a Bloomberg report on Oct. 29, initial public offerings in Hong Kong have raised $37.8 billion so far in 2021, behind the Nasdaq, New York Stock Exchange, and Shanghai.
Global equity capital market activity was at a record high in the first half of this year, Hong Kong included, ranking third with $27.6 billion in revenue. Thanks to the first six months, Hong Kong’s 2021 IPO haul still remains at the highest level through this period.
However, since then, Hong Kong’s IPO market activity in the third quarter has significantly slowed. During Q3, Hong Kong only raised $6.2 billion, a sharp drop of 82 percent from the same period last year and a drop of 76 percent compared to Q2 of this year, reaching the lowest since the start of the CCP (Chinese Communist Party) virus pandemic.
Recent IPOs in Hong Kong have either cut back their size or canceled the listing entirely, and firms that have gone public since August have all dropped from their offer prices.
According to a report (pdf) by Deloitte on Sept. 24, the Shanghai Stock Exchange has benefited from China Telecom, the world’s largest IPO since July, for the first time raising $45.6 billion in revenue, surpassing the Hong Kong Stock Exchange.
“Many new IPOs from China have pushed up the equity capital raised in the Hong Kong Stock Exchange,” Hong Kong Wocom Securities Investment Manager Mike Leung told The Epoch Times. “However, since [the CCP’s] sudden regulatory overhaul toward many industries in China, the investment atmosphere has worsened, causing the Hong Kong stocks to plummet in the second half of the year.”
According to the Deloitte report, there were 73 new stocks listed on the Hong Kong Stock Exchange in the first three quarters, down 26 percent compared to the same period last year. For example, China’s largest express freight logistics provider ANE (Cayman) Inc., launched an IPO on Oct. 29, hoping to raise $174 million, which is far below the initial target of $500 million, due to the low investor sentiment.
According to Bloomberg, IPOs in Hong Kong have dried up since the summer due to Chinese leader Xi Jinping’s push to align companies with his vision of “common prosperity,” causing many firms to delay listing plans. The regulatory overhaul has also hit the local stock market hard, with the Hang Seng China Enterprises Index becoming the worst performer globally.
Stringent COVID-19 Policies Impact Business
In addition, while other countries and regions are gradually relaxing their international borders, Hong Kong has been implementing stringent anti-pandemic measures since last year. Travelers entering Hong Kong from 25 countries and regions, including the United States and the United Kingdom, must be quarantined in hotels at their own expense for 21 days, while others must be quarantined in hotels for 14 days. According to the Financial Times, the policy is expected to last into 2022—possibly until after the CCP’s “20th National Congress” in November next year—based on a Chinese government official. The authorities have not proposed any timeline for loosening the rules.
“The impact of the stringent COVID measures are showing,” Leung said. “Every company has its preparation for listing. The impact on Hong Kong’s IPO last year was not very obvious. But when the stringent pandemic prevention policy lasts for more than one year, or even close to two years, the difficulty of doing business [in Hong Kong] seems to have increased greatly.”
Asia’s largest financial lobby group, whose members include Goldman Sachs and BlackRock, has warned the Hong Kong government that the territory’s status as an international financial center is at risk because of the “highly restrictive” COVID-19 policies that stifle foreign travel.
The Asia Securities Industry and Financial Markets Association (ASIFMA) sent a letter to Hong Kong’s financial secretary Paul Chan, confronting the government on its COVID-19 policies. The letter represented 155 of the largest banks, asset managers, and professional services firms.
The group’s letter was an unusual step, which called on officials to produce a timeline for relaxing travel restrictions amid growing unease in the city’s business community as the rest of the region reopens.
“Investors are more worried and anxious about the prospects than ever since there is no clear timeline to ease the restrictions. Reducing the shares is a way to minimize risk. Many European and American investors are avoiding China’s concept stocks, for the time being, turning their sights to American or Japanese stocks,” Leung added. “Hong Kong IPOs are unlikely to recover in the short term.”
Sarah Liang contributed to this reporting.