Hong Kong IPO market still waiting to rebound from recent flop

Hong Kong’s biggest IPO so far this year failed last week, suggesting the market still needs time to rebound, despite positive signs pointing to a recovery.

The raised offering $675.2 millionbut parts of KKR & Co.-Chinese liquor company supported ZJLD Group plunged nearly 18% on their first day of trading on April 27.

“Sentiment in the IPO markets hasn’t developed yet,” Ringo Choi, head of Asia-Pacific IPOs at EY, told CNBC.

“A lot of industries are hurting right now,” Choi said, noting that tech companies are facing pressure from US-China tensions and falling prices for electric vehicles, among other setbacks.

“Valuations right now haven’t risen from two or three years ago. We still need time,” said Robert Lui, head of Hong Kong offerings at Capital Markets Services Group. Deloitte in China.

Hong Kong’s stock market was among the worst performers last year, lose 15% in 2022 for its third consecutive year of decline.

Along with high inflation and rising rates around the world, equities have also been weighed down by Beijing’s zero Covid strategy and a housing market meltdown in the city. Chinese companies tend to launch secondary listings in Hong Kong as another place to access investors and capital.

Irene Chu, a partner at KPMG China, said the “underlying economy is not doing well.”

“The concern is still about the high interest rate environment and much of the focus in the Greater China region is on the recovery of the economy,” Chu said.

Hong Kong’s two biggest IPOs in 2022 have sunk into their trading debuts. Chinese automaker Zhejiang Leapmotor fell 34% while property management service provider Onewo fell nearly 7%.

The Hong Kong IPO market also started 2023 at a slow pace. In the first quarter of 2023, the city hosted 18 IPOs raising HK$6.6 billion ($840 million), compared to 15 IPOs raising HK$13.6 billion in the same period. a year ago, according to Deloitte data. While the volume of transactions increased by 20%, the value of transactions fell by 51%.

“This slow performance is in line with our expectations. It will take time for trade and economic activities, particularly between mainland China and Hong Kong, to fully resume following the reopening of borders, and ultimately market valuations and activity IPO will follow.” Lui said in a Deloitte China Report Q1 2023.

These analysts also expect that the upcoming IPOs of Alibaba’s business units to lift the Hong Kong stock exchange this year.

The Chinese tech giant has split into six separate units so that each unit except Taobao Tmall Business Group can pursue individual listings – a signal that the Chinese government is easing its grip on the tech giants . Its Cainiao logistics branch and the Freshippo grocery store would be among the first units to go public. Alibaba has not directly confirmed those plans.

Deloitte’s Lui told CNBC that “the current market is much better than the fourth quarter of 2022,” with the potential deals looking to launch on the Hong Kong stock exchange.

“[The Alibaba spinoff] will definitely improve market sentiment and that’s why we expect September to December to be better,” said EY’s Choi.

“We expect the second half of 2023 to be an exciting time for the Hong Kong IPO market, with expectations of an end to US interest rate hikes leading to a repositioning of investment strategies. ‘investment of funds to high-growth regions of Asia such as China,’ said Edward Au, Deloitte China’s Southern Region Managing Partner, said in the firm’s statement. first quarter China report.

Deloitte Capital Markets Services Group predicts that in 2023, Hong Kong will see 110 new registrations raising around HK$230 billion ($29 billion).