Hong Kong leads the world in floats

The Hong Kong stock exchange is expected to keep its world No 1 standing in initial public offerings in 2016, followed by Shanghai in second place, according to KPMG, an international auditing and advisory company.

Louis Lau, partner of the capital markets advisory group at KPMG, said he expects Hong Kong’s IPO market to remain steady in 2017 and to continue being one of the world’s top IPO venues.

Hong Kong led the world in IPOs even though its volume actually fell around 26 percent from 2015 due to uncertainty in the macroeconomic environment, when most currencies declined against the US dollar, Lau said.

The number of “sizeable deals” — those above HK$5 billion ($644 million) — decreased but more small and medium-sized enterprises from the Chinese mainland and other countries continued to seek listings in Hong Kong.

About HK$195 billion were raised through IPOs in 2016, compared with HK$263 billion in 2015. This was the lowest level in three years. The top five IPOs raised HK$108.9 billion, representing over half of the expected total funds raised in 2016, according to KPMG. The company also forecasts that the number of IPOs is expected to reach 120 in the full year of 2016 and that the level in 2017 will be approximately the same.

Most funds were raised by companies in the financial services sector, including banks, securities and leasing companies, according to KPMG. Nine out of the top 10 Hong Kong IPOs in 2016 were from the financial services sector, amounting to nearly 70 percent of the funds raised, up from 54 percent last year.

Healthcare, life sciences and the TMT sectors also occupy noticeable positions in the Hong Kong IPO market.

In the mainland IPO market, approximately 230 IPOs are expected by 2016-end, raising approximately 155 billion yuan ($22.3 billion), a comparable level with last year.

billion

funds raised through Hong Kong IPOs this year

In the Chinese mainland, meanwhile, around 700 companies are queuing to list and an acceleration of IPO approvals and the gradual establishment of multitiered capital markets are expected to help speed up the process.

Lau said that Hong Kong’s IPO pipeline remains healthy, with an increasing number of IPO applications. The launch of the ShenzhenHong Kong stock connect and other upcoming initiatives to connect the Chinese mainland and Hong Kong capital markets will boost market liquidity in the longer term.

Ringo Choi, managing partner for China South and Asia-Pacific IPO leader at EY, reckoned the ShenzhenHong Kong link and the potential IPO connect will lure more investors to buy H shares, thus boosting liquidity, but the impact on the Hong Kong IPO market will be limited. He explained that the vitality of the IPO market relies mostly on valuation and liquidity in the secondary capital market.

Choi said that the market is expecting a large mainland financial technology firm to launch its IPO next year.