There is a disconnect between Singapore’s ascendancy and the performance of the Singapore Exchange (SGX). Indeed, the city-state has in recent years solidified its status as Asia’s premier fintech hub as well as the most important financial center in Southeast Asia. In some aspects of financial services, Singapore has surpassed its long-time competitor Hong Kong. Yet definitely not in capital markets. Despite a subpar IPO year for the Hong Kong Stock Exchange (HKEX), it has still been far more active than SGX.
Japan’s stock market rally seems to have staying power: The Nikkei 225 climbed 0.52% to reach its highest level since July 3 on November 24 while the TOPIX advanced 0.54% to end at 2,390.94. Investors appear to have been reacting to inflation data suggesting that the Bank of Japan will exit its ultra-loose monetary policy sooner rather than later. Data compiled by Goldman Sachs show that the TOPIX had risen 24% in 2023 as November 10 in local currency terms, its fourth-best annual performance since 2001. The Japanese benchmark has significantly outperformed the S&P500 Index of U.S. stocks and Hong Kong’s Hang Seng Index.
What happened to that expected recovery of Hong Kong’s IPO market? It’s now November, and we’re still waiting for it. Throughout the year, analysts have been forecasting that it would just be a matter of time, that as mainland China’s economy fully recovered from pandemic-related lockdowns, activity in Hong Kong’s capital markets would pick up accordingly. Yet a new report from KPMG shows that in the first three quarters of the year, the Hong Kong IPO market concluded 44 listings that raised 24.6 billion HKD (US$3.14 billion), down 15% in terms of proceeds and 65% in deal count over the first nine months of 2022.
With Japanese stocks up 20% since March and the market showing no sign of flagging, one wonders if there is a fundamental change underway in the capital markets of the world’s third largest economy. Unlike in recent years past, Japan’s stock market has in 2023 produced the best returns of any major advanced economy, buoyed by a more pro-shareholder approach by companies and regulators. At the same time, investors are waking up to the opportunities Japan offers now that they are no longer starry eyed about China.
The strong recovery that we and many others had envisioned in Hong Kong’s IPO market has yet to materialize. Listings in Hong Kong have raised just $2.6 billion this year, down 47% from the same period last year and far below 2021 levels, according to Dealogic. With that in mind, we are intrigued to see that Hong Kong’s financial regulators appear to be looking beyond the usual up-and-coming Chinese tech companies and cooperating with both local governments in China and the Indonesia Stock Exchange (IDX).
The Indonesia Stock Exchange has been one of Asia’s top performers this year and globally among the top five exchanges by the amount of capital raised. The IDX has even outperformed the Hong Kong Stock Exchange (HKEX) thus far this year, raising US$2.2 billion as of June, according to Refinitiv data. There is reason to believe that the boom could continue for some time in Southeast Asia’s largest equity market.
In recent years, Singapore’s financial center star has risen so high that the city-state is now commonly referred to as the Switzerland of Asia. It’s an apt comparison, especially considering Singapore’s booming wealth management sector. Yet when it comes to capital markets, Singapore Exchange (SGX) is one of Asia’s weakest performers – and not even close to the Hong Kong Stock Exchange (HKEX). SGX has struggled to attract big-ticket listings despite a push to get tech giants to list closer to home, regulatory changes to attract SPACs and tie-ups with other stock exchanges.
Japan’s stock market rally is a pleasant surprise amid intense geopolitical tensions in its neighborhood and a tough year overall for capital markets. It seems global investors have a renewed faith in Japan Inc. The Nikkei has notched a 14% gain so far this quarter, reaching a 33-year high in early June. Up 22% this year, the Japanese benchmark is way ahead of most of its peers. Though some analysts say that structural problems in the Japanese economy could ultimately diminish investor interest in Japanese stocks, for now the market remains red hot, with yet another boost from better-than-expected GDP growth in the first quarter.
The last time Japan’s stock market was soaring this high, its bubble economy had yet to burst and the Soviet Union still existed. On May 22, the Nikkei index crossed 31,000, hitting a fresh 33-year peak. With gains about 20% for the year, the Nikkei is the top performing Asian stock exchange and just behind the Nasdaq globally. Brokerage SMBC Nikko Securities expects the Nikkei to end the year at 35,000, while Sumitomo Mitsui DS Asset Management expects the index at 33,500.
Chinese companies keen to raise capital overseas have largely shifted away from the U.S. in recent years amid persistent geopolitical tensions. Europe has emerged as a viable alternative, especially Switzerland’s SIX Exchange. While no European country’s capital markets are as liquid as the U.S.’s, the overall process in Europe is much smoother for Chinese firms these days. That said, new GDR issuance rules mandated by Beijing will probably adversely affect the European deal pipeline.
While many IPO markets are lukewarm at best this year, the Indonesia Stock Exchange is doing comparably well. Globally in the first quarter, a total of 299 IPOs raised US$21.5 billion, a sharp decrease of 61% over the same period a year earlier. The usual suspects are responsible: high interests, stubborn inflation, geopolitical tumult – as well as some big and unexpected bank failures. Yet IDX had a cracking Q1: Its US$1.45 billion in IPO proceeds from January to March was its best-ever first-quarter tally, outstripping Hong Kong, Tokyo and London.
Hong Kong’s IPO market had been expected to perform well in the first quarter following the easing of both China’s tech crackdown and zero-Covid policy. With both of those market disruptors in the rearview mirror, it stood to reason that Hong Kong’s capital markets could get back to business as usual. Alas, it was not meant to be. In the January-March period, Hong Kong IPOs raised just US$837 million, a 52% annual decrease and the worst performance since the global financial crisis in 2009, according to data compiled by Refinitiv.
In line with Indonesian President Joko Widodo’s national strategy to boost the global footprint of domestic firms, the Indonesia Stock Exchange (IDX) is stepping up efforts to build international partnerships from Hong Kong to New York. Indonesian regulators are eager to build on strong momentum from 2022, when Indonesia’s benchmark stock index (IDX Composite) was an outlier that rose 4.09% to 6,850.62 points as benchmark indices in Hong Kong, mainland China and Japan all declined.
After a bleak first half of 2022, Hong Kong’s IPO market regained momentum in the second half of the year. Refinitiv data show that 75 listings raised US$12.69 billion.To be sure, it was a weaker performance than 2021, as the number of deals and total proceeds fell 25% and 70% respectively through early December. Yet ironically, Hong Kong’s IPO market ended up No. 3 globally in terms of funds raised in 2022 after Shanghai and Shenzhen thanks to the rebound in deals in the second half of the year.