Hong Kong’s IPO environment is toughest in over a decade as rising interest rates, banking turmoil and an economic slowdown weigh on: Deloitte

According to Deloitte China, Hong Kong’s public fundraising environment is at its toughest in over a decade as global banking turmoil, high interest rates and the slow recovery of mainland China’s economy hit investor sentiment.

Hong Kong is currently ranked eighth in the world among initial public offering (IPO) fundraising hubs, according to Deloitte China Capital Market Service Group’s (CMSG) third quarter report. For the full year, the consultancy expects Hong Kong’s IPO market to reach its lowest level of fundraising in 11 years.

“The stock market remained weak in the third quarter,” Robert Lui, head of services in the South Hong Kong region at Deloitte China, said at a news conference on Friday. “Many IPO candidates continue to wait for a turnaround in market valuations as they prepare and plan their offerings.”

It is estimated that the city hosted 44 IPOs in the first three quarters of 2023, raising 24.7 billion Hong Kong dollars (US$3.1 billion), compared to 51 that raised 64 billion in the same period last year Hong Kong dollars brought in – a 14 percent drop in volume and a 61 percent drop in value.

(LR) The flags of the Hong Kong Stock Exchange, China and Hong Kong flutter in the wind on May 6, 2019. Photo: AFPBut some improvement is expected in the fourth quarter after the city introduced several reforms, including improvements to die Stock Connect to plan, HKEX is new Offices in New York and London and the upcoming launch of FINI, according to Deloitte. Several potential IPO candidates were waiting in the wings, expecting a turnaround in market valuations, sources said.

“Hong Kong remains their preferred choice given the many exciting reforms it has introduced, its unique advantages, particularly as the world’s largest offshore renminbi hub, the free flow of capital with access to international investors and various connection programs with the mainland capital market this facilitates investment connections through various products,” said Edward Au, managing partner for the South region at Deloitte China.

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Elsewhere, blockbuster IPOs in mainland China saw the Shanghai Stock Exchange and Shenzhen Stock Exchange take first and second place respectively.

While mainland exchanges lead listings, Deloitte said regulatory changes to various aspects of its IPO markets, particularly the reduction in listing approvals in the last three months, will result in fewer listings for the rest of the year.

CMSG estimates that there were 263 listings on the A-share market in the third quarter, raising 323.4 billion yuan, compared with 300 listings raising 485.4 billion yuan in the same period last year, a decline of 12 percent and a decrease in resources of 33 percent.

The US Federal Reserve earlier this week decided not to raise interest rates but hinted that there could be another hike later this year. The higher interest rate environment will continue to unsettle the market, said Au.

“While we wait for market fundamentals to improve, it is a good time to think about how we can attract foreign companies to Hong Kong,” Au said.

The government should improve connectivity with the mainland and enrich yuan-denominated investment products while attracting equity investors to boost Hong Kong’s ecosystem, Au added.

The Nasdaq exchange rose to third place with the recent $65 billion listing of SoftBank-owned chipmaker Arm, whose $5 billion IPO became the world’s largest so far this year. Marketing automation company Klaviyo’s mega listing in New York helped it reach fourth place, while Abu Dhabi Securities Exchange took fifth place.

Midea Groupthe world’s largest home appliance maker, is the latest addition to the pipeline after it plans to file on the Hong Kong Stock Exchange for a listing that could raise more than $1 billion.