The Hong Kong stock exchange. Photo: AFP / Anthony Wallace
The Hong Kong stock exchange. Photo: AFP / Anthony Wallace

Hong Kong is expected to be the third largest IPO market worldwide in terms of total funds raised, as of the end of September, placing it behind the Shanghai Stock Exchange, in the runner-up spot, and the New York Stock Exchange (NYSE), according to a Deloitte report released on Thursday.

That order is expected to continue through the end of the year and will represent a reverse of the order for 2016, when Hong Kong IPOs raised the most funds, ahead of Shanghai, with New York coming third. the NYSE’s strong showing so far this year is attributed to a handful of mega IPOs.

For the first three quarters this year, a combined total of HK$85 billion (US$10.89 billion) is expected to be raised in Hong Kong through Initial Public Offerings, a 37% decline from a year earlier. However the volume of IPOs will see a 49% year-on-year increase, rising to 106 from 71. Many of the new offerings are smaller companies listing on the Growth Enterprise Market (GEM).

Deloitte forecasts the total of annual IPO funds raised will be somewhere between HK$130 and HK$150 billion by the end of 2017, with 140-150 new listings in total.

“The exact figure depends on whether a mega listing of a tech company valued at over HK$10billion could be completed by the end of this year,” said Edward Au, co-leader of the National Public Offering Group at Deloitte. It may also be subject to the timing of US interest rate hikes and US tax reform, and to announcements coming out of China’s 19th Communist Party Congress, he added.

Dick Kay (left) and Edward Au (right), co-leaders of the National Public Offering Group at Deloitte, present their report on the Chinese IPO market on September 21, 2017. Photo: Deloitte

Mainland Chinese enterprises in the financial services sector remain the main drivers of Hong Kong IPO market, contributing 82%, or HK$70 billion, of the total funds raised so far this year.

However, the market has also seen an increasing number of overseas firms going public in Hong Kong, in particular infrastructure-related enterprises from Southeast Asian countries.

“Such companies see Hong Kong as a bridge for them to get familiar with the One Belt One Road policies, as they intend to develop some projects under the initiative,” Au explained.

Mainland China: over 30 IPOs per month

As for mainland China, the total amount raised via IPO on the Shanghai and Shenzhen stock exchanges is expected to reach 175.9 billion yuan (US$26.68 billion) by the end of September, a 128% rise from a year earlier. The volume of IPOs for the first three quarters is likely to reach 349, a 177% year-on-year rise.

“On average, over 30 enterprises have gone public per month,” said Au. That frequency is likely to continue, as the China Securities Regulatory Commission has sought to normalize IPOs by giving approvals at a stable pace. There remains a backlog in IPO applications despite the CSRC having accelerated the approval process. IPO applications have in fact reached 583 for the year as of mid-September.

At the current rate, Deloitte estimates the total number of new listings in mainland China being somewhere between 420 and 480 for the whole of 2017, with total funds raised somewhere between 220 and 250 billion yuan.