Hong Kong has historically thrived as a financial center because of its ability to serve as a conduit for capital to and from mainland China. Under the one country, two systems governance model, Hong Kong’s financial system is more open than that of any mainland city, bestowing unique advantages on the territory. Meanwhile, with its capital markets flagging, Hong Kong has sought to use so-called “cornerstone investors” from the mainland – local government entities – to revive its IPO market. Results thus far have been underwhelming, suggesting the need for a more market-oriented approach.

To reach net zero by 2050, Japan aims to slash greenhouse gas emissions by 46% compared to 2013 levels by 2030. To support that objective, in June 2021, the Japanese government announced its Green Growth Strategy and created a US$15 billion Green Innovation Fund. An additional important part of Japan’s path to net zero will be the world’s first sovereign transition bonds.

In what was not a banner year for capital markets, India’s IPO market performed surprisingly well, exceeding expectations and the performance of numerous competitors. We had been expecting Hong Kong to stage a strong comeback in 2023 – which did not happen – while mainland China also did not perform as all as we expected, despite contributing about 40% of global proceeds last year. Overall, in 2023 732 companies went public in Asia Pacific raising US$69.4 billion, an annual decrease of 18% and 44% respectively. India, however, recorded 57 deals that raised roughly US$6 billion. While proceeds were down from 2022’s US$7.2 billion, the number of IPOs was up by more than 25% and among the most of any single market in the world.

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.

In August, the China Securities Regulatory Commission unveiled some potential modest market reforms to strengthen investor confidence and trading in Chinese capital markets. These measures included extension to trading hours for the country’s stock and bond markets, lower transaction fees for brokers and the encouragement of share buybacks. While these measures are welcome and could help boost China’s capital markets, there are underlying economic and political issues that need to be addressed if China’s stock market is to recover definitively.

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.

It was not so long ago that Chinese companies often chose the United States’ capital markets when they sought to list overseas. U.S. stock exchanges offer Chinese companies unparalleled access to a pool of global investors, as well as the prestige that comes with being listed on the New York Stock Exchange (NYSE) or Nasdaq. In addition, being able to cash out in dollars is an attractive element of a U.S. listing. However, geopolitical tensions have made listing in the U.S. more challenging for Chinese companies, while Chinese regulators are tightening oversight of market debuts outside of China, and it is unclear if and when the situation will change.

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.

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.

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