For once, the numbers do not tell the full story. The Hong Kong IPO market has seen 131 deals worth $12.6bn so far this year, according to Dealogic. This is a step down from the 103 listings that raised $20.5bn by this time in 2016. So although there have been more deals this year, they have been much smaller in size.
But no serious equity banker would dream of turning back the clock. Far too many IPOs in the past two years got over the line on artificial demand and equally pumped up valuations, given their Chinese state-owned heritage.
The situation left many market participants fearing Hong Kong was destined to be a graveyard for IPOs of boring, illiquid Chinese companies, along with banks and brokerage houses.
But the city’s IPO market has undergone a marked shift since, discarding many of those awful habits.
The changes probably started around the time of WuXi Biologics’s listing in the middle of the year. The deal earned praise from bankers on and away for its solid execution and for ushering in the return of international institutional investors to Hong Kong equity issuance.
A procession of internet technology and China new economy IPOs have followed since, giving the city’s bourse its first wildly successful share debuts in years. Those deals not only captured the imagination of the global investor community, but also potential issuers. In doing so they have expanded the limits of what is possible in Hong Kong’s equity capital market.
Some would argue this is only a cyclical shift, and that they were only possible thanks to the rising tide of global equity prices. But there is enough evidence to show the changes are structural.
For one, the raft of tech names that have listed this year in Hong Kong offer a taste of what is to come. The success of IPOs from China Literature, Razer, Yixin Group and ZhongAn Online P&C Insurance Co — several of which eschewed cornerstone investors to optimise liquidity for institutional investors — has set up a strong base for next year.
And with the pipeline growing stronger by the day there is proof that this is not just a momentum story.
Headlining next year’s fintech listings in Hong Kong are likely to be names such as Dianrong, Lufax and WeLab. Healthtech firms such as Ping An Good Doctor and WeDoctor Group are also reported to be planning IPOs, while mobile phone maker Xiaomi is another listing hopeful.
Hong Kong will steal even more thunder from the US exchanges if it can push through a longstanding — and controversial — plan to introduce weighted voting rights.
If regulators were a roadblock before, those at the highest echelons of government now seem intent on pushing the agenda through. The Hong Kong Stock Exchange is expected to unveil a new proposal to allow dual-class shares within weeks.
The proposal is likely to drop an earlier plan to create a separate board for companies with dual-class shares and instead integrate them into its mainboard, allowing China’s biggest tech unicorns to have the prestige of listing on Hong Kong’s flagship market. If the plan extends to loss making companies, many of which have taken their business to the US thanks to regulatory arbitrage, then all the better.
To be sure, Hong Kong will continue to be the preferred listing venue for the big Chinese state-owned firms seeking international expansion. China Tower, Sinopec Marketing Co and China Great Wall Asset Management are just some of the names eyeing jumbo IPOs in the city next year.
But they will be the icing on the cake, as investor appetite has already shifted irreversibly in favour of the new class of issuers. The tide has turned for Hong Kong IPOs.