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Contrary to the odds, Hong Kong is challenging to top the listing league table this year. This is a sharp turnaround from the stalled pipeline and investor departure just two years ago. While it is reasonable to question the sustainability of this momentum, the comeback still challenges assumptions about the city’s financial decline.
According to Dealogic, the company raised $13 billion this year from a new list of Asian financial hubs, making it second to Nasdaq and second to the New York Stock Exchange and its Chinese ally. Deloitte’s team is expected to raise total funding to $200 million ($25.5 billion) this year. Meanwhile, the newly listed stocks returned an average of 35%.
The biggest driver of this surge is a large company seeking secondary listings in Hong Kong, technically looking for a local debut rather than an IPO. A timeline of rigorous scrutiny and long-term approvals in the mainland exchange has allowed many businesses to access Hong Kong quickly. According to Dealogic, local floats last year took an average of 432 days from filing last year to listing last year.
Geopolitical dynamics also play an important role. Many mainland companies have chosen Hong Kong as the politically safe venue for global capital as US regulators increase scrutiny of Chinese companies and the threat of registering continues to loom on people trading in New York.
There is a lot of demand. Local retail investors are discouraged by the slump real estate market, backed by margin lending, chasing fast returns to IPOs. Leverage amplified this frenzy with more than 6,000 times the retail portion of Toy Company Bloks Group, while food and beverage group mixes, for example, exceeding 5,000.
However, this retail rush does not necessarily point to an overheated market. Even after earning 37% over the past year, the Hang Seng index trades with just 10 times the advance revenue at a level that is significantly lower than the historically inexpensive and significantly lower US benchmarks.
More importantly, there are indications that institutional investors are tentatively returning after years of retreat. Insurance Group Ping, along with other Chinese insurers, has increased its exposure to Hong Kong-listed financial stocks since the end of last year, betting that a high dividend yield will offset the impact of a shrinking margin.
Certainly, recent rebounds owes something to retail speculation and geopolitical rulings. But to dismiss it is to overlook changing dynamics. This year, it shows that Hong Kong continues to appeal as a gateway to China’s capital and a bridge bridge for international investors seeking to be exposed to China’s growth without the hassle of land investment. That role remains difficult to replicate.
june.yoon@ft.com
