Slow Start Continues as Hong Kong IPOs Saw the Lowest Fundraising in 12 Years

HKEX to establish overseas offices in US, Europe to attract more foreign IPOs and investments

People walk past stock boards at the HKEX offices on Sept. 18, 2019 in Hong Kong, China. Chris McGrath/Getty Images

Hong Kong’s initial public offering (IPO) market saw the lowest fundraising rate in 12 years, with IPO proceeds in May slumping to less than $140 million, and totaling a record low of $2.21 billion for the first five months of 2022.

Amid the market’s grim outlook, the Hong Kong Exchanges and Clearing (HKEX) plans to establish two international offices, in the United States and Europe, to appeal to more investors abroad, Nicolas Aguzin, HKEX’s Chief Executive Officer, told South China Morning Post (SCMP) during the 2022 Annual World Economic Forum in Davos, Switzerland, in May.

HKEX currently has only three offices outside Hong Kong—Beijing, Shanghai, and Singapore. HKEX’s plans to set up offices outside Asia came one month after its Q1 report showed an 89 percent drop in the IPO funds raised compared to a year earlier.

“[HKEX’s] IPO pipeline was incredibly strong … However, [we] are not immune to [the] global market sentiment which resulted in some softness in the IPO market, reduced valuations in our investment portfolio, and pricing volatility in our commodities market,” Aguzin said in HKEX’s first quarterly report (pdf).

A similar message also appeared in Aguzin’s article, written for the 2022 World Economic Forum, attributing the changed world economy to “shifting geopolitics” without further elaborating on what it means. One could interpret it as the ongoing territorial disputes in the South China Sea and the accelerated decoupling between the United States and China.

The latest HKEX data showed no improvement in its IPO market in April or May. The new listing information shows only two new listings from May 1 to 18—KE Holdings Inc.(02423.HK) and Yunkang Group Limited (02325. HK).

KE Holdings had a listing path without selling new shares or raising funds, making Yunkang Group the only company that sold shares in May. The deal raised less than $140 million, marking the lowest for IPOs in May in 10 years.

In April, HKEX had 19 new listings that raised only $2.07 billion, dropping nearly 90 percent compared to $20.7 billion in the same period last year.

The total funds raised in HKEX before June were approximately $2.21 billion, the lowest first five-month amount since 2010.

“The core objective of everything we’re trying to do is to make sure that we continue connecting China and the world,” Aguzin told the Financial Times. “I am not saying it’s an easy agenda, [but] that’s what we have to do.”

Prior to assuming the CEO role at HKEX, Aguzin was the CEO of J.P. Morgan’s International Private Bank. He is the first non-Chinese chief executive to head the exchange. The former J.P. Morgan executive joined HKEX in May 2021 amid a growing number of foreign companies leaving Hong Kong as the city’s status declines as a global financial hub.

A survey report (pdf), published in March by the European Chamber of Commerce in Hong Kong, found a growing number of foreign companies and financial support is withdrawing from the city.

The report found that “25 percent of the respondents affirmed that they would entirely relocate out of Hong Kong in the next 12 months, 24 percent planned to move partially, while 17 percent said they did not have relocation plans. The remaining 34 percent said they were unsure.”

“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.

“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,” Song said.