Mainland China and Hong Kong IPO Markets Update finds that Hong Kong and Shanghai are set to secure top positions for initial public offerings (IPOs), in terms of funds raised. Hong Kong is estimated to raise funds totalling HKD 195 billion, maintaining its top position for a second consecutive year. KPMG forecasts 120 companies will raise HKD 200 billion in Hong Kong in 2017.

In mainland China, around 700 companies are queuing to list. An acceleration of IPO approvals and the gradual establishment of multi-tiered capital markets are expected to help speed up the process. Total IPO proceeds in Shanghai are forecast to remain at a similar level of RMB 105 billion, despite the number of listings increasing to 105, from 89 the previous year.

We are of the view that Hong Kong is set to continue as a preferred destination for listing. The recently launched Shenzhen-Hong Kong Stock Connect is likely to boost liquidity in both China and Hong Kong’s capital markets and further enhance the integration of the two regions’ capital markets. This will increase Hong Kong’s attractiveness as an investment hub.

The Shenzhen stock market tends to feature a larger number of technology companies, whereas Hong Kong does not have this sector included to the same extent. This may attract more northbound investment compared to the Shanghai-Hong Kong stock connect. The Shenzhen-Hong Kong stock connect may trigger greater interest in the technology sector and attract more tech firms seeking IPOs in Hong Kong.

With deleveraging across multiple sectors in China, the demand for equity financing from China enterprises is expected to continue. The number of China companies seeking to list is likely to increase, as evidenced by the strong pipeline in the Hong Kong IPO market. Over half of these IPO applicants originate in China.

Key reform measures such as deepening the ChiNext, NEEQ (National Equities Exchange and Quotations) reforms, mechanisms for transferring between markets, and the registration-based system are critical to for future market developments. In light of stabilising economic growth and various regulatory reforms in progress, it is anticipated that China’s capital markets will maintain their advantage and be set to play a greater role in the global capital markets.