Hong Kong index really needs a star IPO
It will take an “Ant” to move this Hong Kong stock mountain. Until recently, Hong Kong was an IPO desert.
Issuance had been falling for four consecutive years as investors grew weary of deal after deal from state-owned Chinese companies.
Then came ZhongAn Online P&C Insurance Company and Tencent Holdings-backed China Literature, which both ignited interest with their new-economy business models. Last month, the city loosened share sale rules to allow for dual-class stocks.
It also did away with a revenue requirement for innovative companies. Now, Hong Kong’s listing committee is facing a flood that threatens to topple Goldman Sachs’s IPO forecast of $38 billion (Dh139.6bn) for this year.
There’s smartphone maker Xiaomi, Lufax, WeLab, Meituan Dianping and Jack Ma’s Ant Financial Services Group, which operates payments platform Alipay. That’s on top of US cancer detection start-up Grail, 3D Medicines and China Tower. At this rate, Hong Kong will have no problem vaulting into the No 1 spot for share sales globally. But apart from China Tower, which is sure to find plenty of support, many may have a problem meeting the heady valuations being bandied about.
Xiaomi, for instance, isn’t generating much excitement with its promise of low operating margins on hardware. Ride hailing service Didi Chuxing may have defeated Uber Technologies in China, but Meituan Dianping is now muscling in on its territory. Biotech firms, meanwhile, are notoriously prone to boom-and-bust cycles – and let’s not even talk about the risks of cryptocurrency plays.
Hong Kong’s lack of trading depth is another concern. Turnover in Alibaba Group Holding’s US shares this year has ranged between 20 to 30 per cent of the value of all securities changing hands on Hong Kong’s main board, for example. And investors in the former British colony tend to be less discerning, prizing profit above all else and turning a blind eye to other important considerations, like a company’s longer-term growth potential.
Already there are signs that everything might not be going the way Hong Kong Exchanges & Clearing hoped.
Razer is down 37 per cent since listing, while Ping An Healthcare & Technology, or Good Doctor, is also under water. Chinese companies that are listed in the United States, like Baidu’s iQiyi and Huya, are having a much better time of it.
To guarantee big gains, Hong Kong really needs another Tencent. There aren’t many in the queue that fit the bill. But, if it successfully navigates its way through stricter regulations being imposed by Beijing, Ant Financial Services might be the one.
There aren’t many in the queue that fit the bill – but, if it successfully navigates its way through regulations, Ant Financial might be the one