According to George Chan, the global IPO leader at EY, the market for initial public offerings in Hong Kong is set to see significant improvement over the next five years, with the trend starting in the second half of this year. Despite facing challenges such as high U.S. interest rates, regulatory scrutiny, slower economic growth, and U.S.-China tensions in recent years, Chan remains optimistic about the future of IPOs in Hong Kong. He believes that the market is on the path to recovery and that there is light at the end of the tunnel.
Changing Trends
EY’s report highlighted the increase in IPO volume and proceeds in the U.S. in the first half of 2024 compared to the same period a year ago, while mainland China and Hong Kong saw a decline in listings. However, recent macro trends are shifting, which could bolster the IPO market in Hong Kong. Chan points to the return of U.S. dollar funds to Hong Kong as a positive sign, with many companies opting for listings in Hong Kong over mainland China due to quicker approvals and more favorable conditions.
The Hang Seng Index has shown a promising upward trend, reversing four years of decline, and providing a positive outlook for the Hong Kong market. Marcia Ellis, global co-chair of the private equity practice at Morrison Foerster in Hong Kong, expressed confidence in a robust pipeline for the second half of the year, anticipating numerous listings on the Hong Kong Stock Exchange. The recent measures introduced by China to promote venture capital and support IPOs in Hong Kong are also encouraging signs for investors and analysts.
Consumer Companies on the Rise
Consumer companies are expected to be among the near-term beneficiaries of the recovering economy in China, with growing consumer spending driving demand. Despite slower retail sales growth in China, there is optimism surrounding the economic recovery and potential IPO opportunities in Hong Kong. Chan believes that reducing interest rates could further stimulate the IPO market, attracting more investors and boosting the overall market sentiment.
While Hong Kong IPOs faced a 34% drop in proceeds during the first half of the year compared to a year ago, there is hope for a resurgence in IPO activity. Bonnie Chan, CEO of Hong Kong Exchanges and Clearing Limited, highlighted a 50% increase in new listing applications this year, indicating a growing interest in the Hong Kong market. With a strong pipeline of potential IPOs waiting to launch, all eyes are on market conditions and investor sentiment to drive successful listings in the coming months.
Looking Ahead
George Chan remains optimistic about the future of IPOs in Hong Kong, expecting an increase in the number of deals in the second half of 2024. While medium-sized deals are likely in the short term, he anticipates better market momentum in 2025. Despite challenges such as slowing economic growth and geopolitical uncertainties affecting early-stage investments in Chinese startups, there is hope for a brighter future for IPOs in Hong Kong. As regulations evolve and market conditions improve, the IPO market in Hong Kong is poised for growth in the next five years.