Since 2020, Hong Kong has experienced its first increase in new listings, thanks to a policy shift in Beijing that has rekindled optimism.

• For the first time in three years, the Hong Kong stock exchange experienced an increase in new listings, specifically in terms of deal values.
• Only if there is continued improvement in the onshore economy and geopolitical tensions ease up will there be a further increase in Hong Kong's IPO activities, according to Andy Maynard, managing director and head of equities at China Renaissance.

The offshore market in Hong Kong experienced a significant increase in listing activities this year, with more Chinese companies choosing to raise capital in the city and investors becoming more optimistic following Beijing's pledge to support the market.

For the first time in three years, the Hong Kong stock exchange experienced an increase in new listings, in terms of deal values, with both initial public offerings and follow-on share sales included, according to data from Dealogic.

In 2023, the city's bourse raised a combined $5.89 billion across 67 deals, which was the lowest since 2001. However, this year, the bourse raised a significant increase of more than 80% to $10.65 billion across 63 deals.

The average deal size in Hong Kong's market increased by almost double from the previous year to $169 million, indicating a growing confidence among companies and investors.

The number of firms seeking public flotations in Hong Kong increased in the second half of this year, following the Chinese securities regulator's pledge in April to support the Hong Kong market and facilitate more IPOs from leading mainland companies.

Beijing's increased stimulus package has increased companies' interest in raising capital in the offshore city and attracted back some foreign capital funds, experts stated.

According to KPMG, Hong Kong is projected to rank fourth worldwide in funds raised through IPOs this year, following India and the U.S. stock exchanges.

Since 2022, there has been a significant amount of pent-up demand for capital raising in the city's economy, according to Andy Maynard, managing director and head of equities at China Renaissance, who made this statement in an email.

Maynard warned that a further increase in Hong Kong's IPO activities can only be expected if there is sustained improvement in the onshore economy and geopolitical tensions ease.

'Signs of life'

For years, the demand for listing activity in the Asian financial hub has decreased due to geopolitical tensions and higher global interest rates, which reduced investors' appetite for Hong Kong and Chinese equity capital market deals.

Companies' valuations were a source of concern for both issuers and investors due to China's economic downturn and persistent housing market crisis.

Qing Wang, chairman and chief strategist at Shanghai Chongyang Investment Management, stated that investor sentiment has improved this year, particularly in sectors that would benefit from policy support, such as consumption-related businesses.

In September, Midea Group, which sells air conditioners, washing machines, elevators, and other consumer products, secured the city's largest listing since early 2021. Its shares listed in Hong Kong have surged over 36% from their offer price, as investors remain optimistic about its potential to benefit from Beijing's "trade-in program," aimed at motivating consumers and businesses to upgrade their existing appliances and equipment.

According to the exchange's website, as of Nov. 29, there were 90 IPO applications that were either pending listing or under processing.

UBS global banking Asia's vice chairman and co-head of Asia country coverage, John Lee, predicts that the city may experience a "gradual recovery" in its IPO pipeline in 2025, rather than a "V-shaped" one.

This year, mainland investors have purchased $96.4 billion worth of Hong Kong stocks, surpassing the previous year's total of $42 billion and approaching the largest year since 2020's $87 billion buying spree, according to Goldman Sachs data.

Ion Analytics' head of APAC equity capital market, Perris Lee, stated that there is a gradual return of foreign long-only funds to China and Hong Kong equities, though the pace is slow.

'Not a Santa rally'

The two largest IPO deals in the city this year, Horizon Robotics and China Resources Beverage, experienced a decline of 12% and 11%, respectively, in their share prices as of Wednesday from their offer price levels.

Wang, the CEO of Shanghai Chongyang, stated that investors require "concrete evidence of stimulus policy effectiveness." He anticipates a positive shift in sentiment during the early months of the second quarter, as public companies begin to release their earnings.

The Hang Seng Index is experiencing its first yearly increase after four consecutive years of drops, with a gain of over 16% so far in 2021.

The momentum of the rally, which was driven by Beijing's large stimulus package in September, has decreased.

Maynard from China Renaissance stated that although the Hong Kong stock market may have turned a corner, he does not see "any prospect of a Santa rally." The market remains "trapped and range-bound" due to Beijing's stimulus announcements since September underperforming.