Hong Kong Saw Worst First-Quarter IPO Performance in Nearly A Decade, Falls From Top Five Global Ranking

Investor confidence is low due to draconian COVID measures and regulatory risks from Beijing, experts say

The Hong Kong Exchanges & Clearing Ltd. (HKEX) at the financial Central district in Hong Kong, on Sept. 27, 2021. Yu Kong/The Epoch Times

The Hong Kong Stock Exchange (HKEX) saw its worst performance quarter in IPO fundraising since 2013, pushing the city out of the top five in the global IPO ranking. Analysts believe it is investor lack of confidence in Hong Kong’s capital market that led to the poor performance.

Initial public offering (IPO) is the core business of HKEX. According to South Morning China Post (SMCP), funds raised from new IPOs in Hong Kong plunged 90 percent year-on-year in the first quarter. The city fell to sixth place in the global rankings for IPOs from second, even lagging behind the Saudi Stock Exchange in performance.

HKEX’s first-quarter performance this year slumped to the lowest level since 2013 despite its CEO Nicolas Aguzin’s claim on March 29 that it was processing over 170 IPO applications at the time.

“Investors’ confidence is the most important factor in a capital market. The current [performance] of the Hong Kong Stock Exchange is mainly a reflection of investors’ attitude toward the market: A lack of confidence,” Senior Chinese financial analyst Albert Song told The Epoch Times on April 5.

Song, with 27 years of experience in China’s financial industry, is also an expert on Chinese politics and economics.

Hong Kong’s political and business environment has deteriorated since Beijing imposed the national security law in the summer of 2020. Beijing has imposed heavy fines on big tech firms through new regulatory measures, such as clamping down on Alibaba affiliate Ant Group’s IPO.

Song believes that these actions taken by the Chinese Communist Party (CCP) have shaken Hong Kong’s status as an international financial center and worried the investors. Under such circumstances, investors would have to factor in political and regulatory risks when investing in Chinese or Hong Kong stocks.

“There is also a joint effect in the stocks listed in both Hong Kong and [abroad]. Some companies listed in the United States are also listed in Hong Kong, such as Alibaba; if the stock performed [poorly] in the U.S., it would also dampen investors’ confidence in the stock in Hong Kong,” Song said.

“The stock market is a barometer of the economy, and investors and capital markets vote with their feet. Over the past two years, lots of capital has been moved from Hong Kong to Singapore, including asset transfers and capitalization changes.”

The CCP’s draconian “zero-COVID” policy has also contributed to the withdrawal of foreign capital.

Around half of the European companies are considering retreating from Hong Kong in 2023, according to a recent survey, citing the harsh COVID-19 curbs as the main reason.

According to Hong Kong local newspaper, The Standard, the survey was conducted by the European Chamber of Commerce in Hong Kong between Jan. 18 and Feb. 5. The respondents included 260 representatives from consultancy, financial services, telecommunications, and retail.

The results showed that 25 percent of companies would exercise a full retreat within the next 12 months, while 24 percent plan to move partially.

‘Talent Exodus’ From Hong Kong

Another recent survey from the Hong Kong General Chamber of Commerce (HKGCC) found that emigration waves have lead to a shortage of skilled workers and impacted businesses of all sizes.

The results showed that 38 percent of respondents said they had been adversely affected by the loss of workers to varying degrees, ranging from “medium” (24 percent), “high” (12 percent), to “very high” (2 percent).

The loss in talent spans a broad range of skills, from engineering and technical services to finance and accounting to information technology.

“Hong Kong is facing an exodus of educated workers on a scale not seen since the early 1990s, and this will have a material knock-on impact on the economy. Given the importance of human capital in Hong Kong’s service-driven and knowledge-based economy, there is real cause for concern if we cannot stem the current brain drain,” said Chamber Chairman Peter Wong.

On March 30, Hong Kong leader Carrie Lam admitted that the global financial hub was seeing a “brain drain” due to the stringent COVID-19 rules, Reuters reported.

Meanwhile, the total number of work visa applications for Hong Kong fell by a third, with applications for the financial services industry falling by 23 percent, according to a local news report.

Despite the drying up of IPOs over the past six months amid a regulatory crackdown by Beijing and the subsequent market downturn, HKEX CEO Nicolas Aguzin remained optimistic about the bourse’s future, SCMP reported.

“Every market around the world was affected by COVID. This is something that no one escaped,” Aguzin said, adding that HKEX is looking to strengthen its role as a super-connector between mainland China and the rest of the world and that HKEX will open more offices overseas and “become more global.”

Aguzin, a former JPMorgan executive, is the first non-Chinese chief executive to head the exchange.