After languishing in bear market territory for more than three years, the Hong Kong stock market is showing signs of picking up. There has been a flurry of initial public offering (IPO) activities and indications that investor sentiment is improving underpinned by an uptick in daily market turnover. The signs of a stock market recovery are even prompting some of those close to the capital markets to speak of ‘cautious optimism’ for the future.
As of early June, according to an EY report, a total of 28 companies had successfully completed Hong Kong IPOs in 2024, raising a total of HK$12.1bn (US$1.55bn). Among these, QuantumPharm, the year’s third-largest IPO, broke new ground by becoming the first specialist tech company to list in accordance with the exchange’s chapter 18C regulations. Chapter 18C allows companies worth at least HK$10bn (US$1.28bn) to sell shares even before they have generated any revenue. Under the Hong Kong market’s regular listing processes, an HK$80m (US$10.25m) profit has to be shown in the three consecutive years preceding an IPO application.
Around HK$100bn of IPO funding should be raised this year in Hong Kong
Backed by mainland China’s tech multinational Tencent, QuantumPharm, which deploys AI and quantum physics in pharmaceuticals R&D, raised HK$989.3m (US$126.8m) with its IPO. Hailed by market regulators as a ‘significant milestone’ in the development of the Hong Kong stock market, the IPO was oversubscribed by more than 100 times by retail investors even though the company has yet to post a dollar of profit. QuantumPharm duly registered a 10% bounce on its debut price on the first day of listing.
Tech rejuvenation
While a number of potential mainland China issuers are thought to be waiting for a rebound in market valuations, many are hoping a successful chapter 18C IPO could breathe new life into the market. Consultancy firms speculate that the implementation of the chapter 18C listing regime could help to connect specialist tech companies with international funds, bringing new opportunities to those businesses as well as benefitting the Hong Kong stock market.
Currently, about a hundred mainland China companies, including a high percentage of technology-focused businesses, are in the pipeline for a Hong Kong IPO listing. About 80 of them are expected to activate their IPOs in Hong Kong in 2024, with total funds raised projected to be close to HK$100bn (US$12.8bn).
The five new measures could widen the investor base and encourage fund inflow
Five shots
Notably, IPO application activities have picked up after Beijing announced a number of measures to boost liquidity in Hong Kong’s capital markets. In April, the China Securities Regulatory Commission announced five measures to further enhance the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes. The schemes give mainland China investors access to Hong Kong markets while Hong Kong and international investors gain access to mainland China’s markets. The five enhancement measures include expanding the scope of eligible exchange traded funds, incorporating real estate investment trusts into the connect schemes, including yuan-denominated stocks in the southbound connnects, expanding mutual recognition of funds, and supporting the listing of leading mainland companies in Hong Kong.
Market watchers believe these efforts could help to widen the investor base, encourage incremental fund inflow to the Hong Kong stock market and boost stock liquidity. According to bourse operator Hong Kong Exchanges and Clearing, the average daily turnover in May 2024 was HK$139.8bn (US$17.9bn), an increase of 24% on the HK$112.3bn (US$14.4bn) recorded in April 2024, and of 38% on HK$101bn (US$12.9bn) recorded in May 2023.
Hong Kong ranked as the world’s top IPO destination seven times between 2009 and 2019. There is now a strong chance that 2024 will be the year when it reclaims its spot as the top-tier destination for IPO listings.
