In late August, the China Securities Regulatory Commission (CSRC) said that it would start a phased restriction on IPOs to boost "dynamic equilibrium" between investment and financing. The CSRC has not yet said how long the curbs will last, and market insiders foresee stricter IPO vetting and a longer registration process.
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.
2022 is a tough act to follow for China’s IPO market. Last year, about 400 firms went public on China’s exchanges, raising a record RMB 560 billion (US$80.4 billion), an increase of 3% over 2021, according to PwC. Investor appetite was strong last year amid a resilient Chinese economy, tech firms continuing to emerge, and large red-chip companies listed overseas returning to mainland stock markets. While Chinese exchanges are unlikely to equal their stellar 2022 performance this year, they still have thus far raised five times as much as their U.S. counterparts.
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.
To answer the question posed in the title, yes and no. Yes, Chinese sensor maker Hesai Group recently raised US$190 million in the largest U.S. IPO by a Chinese firm in 15 months, but it may have been a one-off event given investors are especially eager for exposure to the red-hot electric vehicle (EV) market. No, we do not think this yet portends a reversal of the slow deal pipeline for Chinese companies in U.S. capital markets. The underlying U.S.-China relationship remains too troubled for that kind of dramatic shift.
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.
Is Europe the new New York for Chinese companies keen to raise capital overseas? Not exactly, as there is no exact replacement for the capital markets opportunities that the Nasdaq and NYSE once afforded Chinese firms. But given persistent tensions in the U.S.-China relationship, Chinese companies are opting for less liquid capital markets and less prestigious overseas listings – but without any of the geopolitical drama that has come to characterize their presence on U.S. exchanges. Switzerland’s SIX, meanwhile, is fast becoming the exchange of choice for Chinese companies wanting to raise capital outside of Greater China.
2022 was a year of mixed fortunes for China in many respects – but not in the case of its IPO market. Despite the trials and tribulations that the zero-Covid policy brought to China, listings on the Shanghai and Shenzhen stock exchanges hit a new high. Nearly 400 firms are estimated to have gone public on China’s exchanges in 2022, raising a record RMB 560 billion (US$80.4 billion), an increase of 3% over 2021, according to PwC.
Historically, Chinese companies seeking to go public overseas have listed in the United States, home to the world’s most liquid capital markets. Nothing can quite compare with listing on the New York Stock Exchange (NYSE) or Nasdaq. While that remains the case, the fraught U.S.-China relationship has caused Chinese firms to turn their focus to European stock exchanges, especially Switzerland’s SIX. In Europe, Chinese companies can mostly steer clear of geopolitical tensions while still being able to access global investors.
It has not been the best year so far for Hong Kong’s IPO market, in a stark reversal from its strong performance in the earlier days of the pandemic. Battered by a confluence of unfortunate factors, from the city’s erstwhile zero-Covid policy to China’s tech crackdown to inflation and rising interest rates, the Hong Kong IPO market has thus far raised just US$7.77 billion, the lowest amount since 2013. While there are signs of a revival in the market, particularly with the imminent listing of two Chinese electric vehicle makers, the road to recovery remains long.
Rakuten wants to build a digital services ecosystem that stretches well beyond the e-commerce business for which it is best known and includes telecoms and digital financial services. With that in mind, the Japanese online shopping giant plans to list both its online securities and digital banking units relatively soon. However, market conditions are suboptimal to say the least, while investors are increasingly skeptical about Rakuten’s costly efforts to build a mobile network to compete against powerful incumbents SoftBank and NTT DoCoMo.
Though the U.S. and China have for now reached a stock delisting détente, Chinese firms are continuing to show interest in raising capital on European exchanges this year. As such, for the first time ever, Chinese companies have raised more in European capital markets than in the U.S., with the focus on the UK and Switzerland.
Indonesia has big plans for its capital markets, among the best performing in Asia this year. Through August 5, 34 companies had listed on the Indonesia Stock Exchange (IDX), raising a total of 20.1 trillion rupiah. By the end of the third quarter, Indonesia plans to launch a new economy board to attract more unicorns. Further, by the end of the year, it plans to roll out a dedicated cryptocurrency bourse.
While U.S.-China tensions are heated in many areas, it appears that the two countries want to keep the bilateral relationship on an even keel when it comes to the financial services sector. Despite the sensitive politics on both sides of the conversation, the two countries have, for now, reached an agreement that should reduce the chance of a large-scale delisting of Chinese companies from U.S. stock exchanges.
The Singapore Exchange has long been quiet compared to other prominent bourses in Asia, from Hong Kong to Shanghai, Tokyo to Mumbai. We might call it a sleeper – provided that it has adequate potential to awake. In 2021, fundraising on SGX fell 50% to $565 million, a six-year low, with just eight listings, according to Refintiv.
We have heard a lot about Chinese companies potentially delisting en masse from the U.S.’s capital markets. Without an eleventh-hour deal between the US and China, that may be inevitable. The paramount long-term trend, however, is where they will go in the first place to raise capital internationally. Hong Kong is the most obvious choice, but there are also options in Europe thanks to the establishment of stock connect programs. To that end, with the launch of the China-Switzerland Stock Connect four Chinese companies have listed on the Six Swiss Exchange.
U.S.-China financial decoupling has been happening in slow motion and sometimes appears to be leveling off, allowing some observers to stay optimistic. In reality, however, it will not be easy for American and Chinese regulators to agree on a deal that allows Chinese firms to remain listed on U.S. stock exchanges. With that in mind, Alibaba recently announced it will pursue a primary listing in Hong Kong.
The government crackdown on China’s tech sector has had many far-reaching effects, among the most consequential the reorientation of the country’s capital markets ecosystem away from consumer-facing platform companies and towards a state-guided deal pipeline focused on strategic industries. E-commerce, fintech, ride hailing and home sharing are out, while advanced manufacturing, artificial intelligence, 5G telecommunications and renewable energy are in. Big-ticket mainland IPOs are becoming more common, especially with the advent of the Shanghai STAR board, China’s answer to the Nasdaq.
During China’s long tech boom, private investors availed themselves of the abundant opportunities afforded by Chinese IPOs, whether onshore, in Hong Kong or in New York. Yet with Beijing’s crackdown on the tech sector and persistent U.S.-China tensions, Chinese IPOs are going in a very different direction.
Platform companies have not had the best 2022, especially loss-making ones based in Southeast Asia. Amid global economic jitters, investors are souring on inflated tech valuations and stocks. We had thought Indonesia’s GoTo, with its laser focus on its massive home market and strong fundamentals, might be able to buck this trend, and at first it seemed the company might do just that. After all, its IPO was successful. But in recent weeks, the company’s share price has plummeted, mirroring the trajectories of its peers like Sea Group, Grab, Alibaba and Paytm.
Heading into GoTo’s IPO Monday, one could be forgiven for being a bit skeptical. Here was another loss-making platform company with a sky-high valuation and a lot of subsidy-driven digital services. If you’ve seen one, you’ve seen them all, right? Not necessarily, say investors. GoTo raised US$1.1 billion in a triumphant IPO on the Indonesia Stock Exchange. Shares rose up to 23% and closed the day 13% higher at 382 rupiah, valuing the firm at about US$31.5 billion.
Hong Kong’s IPO market has likely hit a nadir, with funds raised from new share listings plummeting 90% year-on-year in the first quarter. Just 11 companies went public on the Hong Kong Stock Exchange in the January-March period, raising a total of US$1.72 billion. It was HKEX’s worst performance since the first quarter of 2013.
There is a growing list of Chinese companies that could be forced to exit U.S. stock exchanges under legislation passed in 2020. The legislation requires all public companies in the U.S. to comply with auditing requirements that Chinese companies have resisted due to Beijing’s own state secrecy laws. On March 30, the Securities and Exchange Commission (SEC) added Baidu to the list. A total of 11 Chinese companies facing delisting have been named so far.
Remember that SPAC boom in the U.S.? To be sure, it has slowed in recent months, but the Nasdaq and NYSE continue to attract some high-profile listings by special purpose acquisition companies, such as Grab’s December debut. It is a different story in Asia. Though Asian exchanges amended regulations last year to wave the way for SPACs, there have not been any blockbusters yet.
Why now? That is the question many analysts and investors are pondering as Indonesian platform company GoTo is pushing ahead with an IPO that seeks to raise up to US$1 billion at a US$30 billion valuation despite the poor performance of loss-making companies' shares in recent months. Like its Singaporean counterpart Grab, GoTo began as an Asian answer to Uber but has morphed into a super app leaning heavily on digital financial services to secure its future. And like Grab, GoTo has yet to turn a profit, spends heavily subsidizing users, and made investors wait a long time for an exit.
When it rains it pours, at least for super apps. Throughout Asia, platform companies are struggling as their capabilities often cannot match overly lofty investor expectations. The problem is especially acute for India’s Paytm, whose record-breaking IPO – it is India’s largest to date – nevertheless turned out to be a sign of worse things to come. Paytm’s stock fell 27% on its first day of trading and has fallen about 65% since the November IPO to 543.5 Indian rupees.
Amid a general digital finance boom in Indonesia, the nascent retail investing segment is growing fast. A proliferation of investment apps, usually with low minimum investments, is allowing a much greater proportion of the population to invest. Historically, the wealthy have dominated the country’s stock market. Indonesia’s newbie investors are not only interested in equities though; they are also increasingly keen on crypto. Many of Indonesia’ new retail investors are young people, with about 70% between the ages of 17 and 30, according to Indonesia’s central securities depository.