Hong Kong IPO boom challenges the city’s critics

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.Towards the chances, Hong Kong is again difficult for the highest of the itemizing league tables this yr. That’s a pointy reversal from the stalled pipeline and investor exodus of simply two years in the past. It’s affordable to query the sustainability of this momentum, however the comeback nonetheless challenges assumptions in regards to the metropolis’s monetary decline.Corporations have raised $13bn from new listings within the Asian monetary hub this yr, in accordance with Dealogic, leaving it second solely to Nasdaq and nicely forward of the New York Inventory Trade and its Chinese language friends. Complete fundraising is predicted to succeed in HK$200bn ($25.5bn) this yr, Deloitte’s workforce reckons. In the meantime, newly listed shares have returned a mean of 35 per cent.The most important driver of this surge has been huge Chinese language firms looking for secondary listings in Hong Kong — not technically IPOs however native debuts nonetheless — together with electrical battery big CATL, which raised $5.3bn. Tighter scrutiny and extended approval timelines on mainland exchanges have pushed many firms to Hong Kong for faster entry to capital. Native floats final yr took a mean of 432 days from submitting to itemizing final yr, in accordance with Dealogic.Geopolitical dynamics have additionally performed a big position. As US regulators enhance scrutiny of Chinese language firms and delisting threats proceed to loom over these traded in New York, many mainland firms are choosing Hong Kong as a politically safer venue for world capital. There’s loads of demand. Native retail traders, discouraged by a sluggish property market and supported by margin lending, have piled into IPOs chasing fast returns. Leverage has amplified this frenzy with the retail portion for toy firm Bloks Group oversubscribed by greater than 6,000 instances, for instance, whereas meals and beverage group Mixue exceeded 5,000.But this retail rush doesn’t essentially level to an overheated market. Even after a 37 per cent achieve previously yr, the Hold Seng index trades at simply 10 instances ahead earnings, a stage that is still traditionally low cost and considerably decrease than comparable US benchmarks. Extra importantly, there are indicators that institutional traders are tentatively returning after years of retreat. Ping An Insurance coverage Group, together with different main Chinese language insurers, has elevated its publicity to Hong Kong-listed monetary shares since late final yr, betting that prime dividend yields will offset the influence of shrinking margins.Definitely the current rebound owes one thing to retail hypothesis and geopolitical arbitrage. However to dismiss it’s to miss the altering dynamics underneath means. This yr reveals Hong Kong continues to carry enchantment as a gateway for Chinese language capital and a bridge for worldwide traders looking for publicity to Chinese language progress with out the effort of investing onshore. That position stays tough to copy.june.yoon@ft.com