Global goliaths get humbled in HK
When 2016 rang in, the Hong Kong investment banking scene took a sudden underdog storyline: Smaller local players began gobbling up more deals in equity capital markets (ECM), eating into a market previously cornered by global players. Analysts reckon this trend favouring smaller, as well as mainland, players will persist in 2017 due to the challenging environment that has put dominant international houses on a slump.
“The market in Hong Kong is changing rapidly. It used to be dominated by Western-oriented international and global investment banks,” notes Keith Pogson, senior partner, Asia-pacific financial services at EY. “But this has changed quite dramatically, with both a combination of mainland players and smaller local players having a much larger share of the action and role to play.”
Dividing the deals pie
In the ECM space, in which Hong Kong has remained as one of the most vibrant markets globally, deals are increasingly managed and underwritten by mainland or local houses. Pogson reckons this reflects China’s dominance of the deal flow at the large end of the market, and the abundance of deals with local houses and boutiques at the smaller end.
Global players, by contrast, have been constricted to super large deals or deals that require a wider market nexus, and they will not likely regain their dominance in the coming years. “Capital markets deal flow has become more bifurcated, between the previously dominant international houses, who are generally getting a smaller slice of what was a reasonable sized pie in 2016, versus local and mainland players who have clearly been on an upswing in terms of market share,” says Pogson. “Pricing has remained tight given the dynamics and this, in the long run, is difficult to see recovering back to the richer levels historically enjoyed.”
A key theme in 2017 will be a shift in focus to seizing “smaller deals with great potential,” says
Mark Chan, managing partner at HM Chan & Co in association with Taylor Wessing, although there will be an occasional mega transaction. He notes a lack of sizeable transactions, especially in the initial public offering (IPO) space in Hong Kong.