New Year’s Eve in Hong Kong is always a spectacular affair with fireworks lighting up Victoria Harbour. This year, there will be investment pyrotechnics to cheer too: an overhaul in market listing rules has sparked an extraordinary run of initial public offerings and put Hong Kong on course to finish 2018 as the world’s biggest IPO market.
The April listing regime reform – which allows firms with weighted voting rights and biotech ventures without revenue to launch IPOs – has opened opportunities for innovative companies to raise funds to develop the next game-changing technologies, from artificial intelligence and Internet of Things, to precision medicine and beyond.
Hong Kong’s IPO fundraising is forecast to exceed US$38 billion by the end of the year, nearly triple the amount secured last year, according to KPMG. That’s been boosted by a very strong third quarter that saw the listings of China Tower, the world’s biggest flotation in two years, and telecom giant Xiaomi.
The IPO boom has implications that go far beyond share valuations. By making Hong Kong a centre for innovation financing, the vision is to energise Hong Kong’s new economy ecosystem, turning the Greater Bay Area – which includes Hong Kong, Macau and Guangdong – into a crucible of world-class tech transformation.
There are however some clouds in this picture. The 10 biggest IPOs of the past year – including China Tower, Xiaomi and biotech firm BeiGene – are trading below their offer prices. The overall Hang Seng index slipped recently into bear market territory. The volatility is due to concerns about tightening monetary policy, the US-China trade war and currency upheaval in emerging markets. Some Chinese tech companies are being seen as being hasty to raise IPO funds to beat interest rate hikes, as well find new growth routes as private equity financing dries up.
In spite of these issues, the overall picture remains one of investment opportunity meeting innovation prowess. The IPO impetus will have the knock-on effects of stimulating Hong Kong’s tech environment and attracting both homegrown and international talent. Biotech in particular will be one of China’s most explosive growth sectors in decades to come, as top researchers create healthcare solutions for a rapidly aging and increasingly affluent population. And of course Hong Kong’s wealth of experience as a global financial centre makes it well placed to handle the intricacies of new economy flotations.
“Even though potential interest rate increases and changes in geopolitical situations may affect market sentiment, we expect the strong demand for IPO fund-raising to continue,” says Benson Wong, Entrepreneur Group Leader at PwC Hong Kong. “We believe the listing reform will attract more tech and innovative companies to the bourse.”
The rocky ride taken by recent listings can be seen as part of the growing pains in a fledgling market. When biotech firm BeiGene floated in August, its CEO identified the opportunity to generate know-how about the value of new issuances as one of the key merits of the IPO overhaul: “There are a lot of global investors that are specialists in biotech, but they know very little about China. And there are a lot of investors [here] that know a lot about China, but they know very little about biotech,” said John V. Oyler. “The dual-listing that we’re doing is helping educate both ways.”
Hong Kong’s IPO hot streak may have its cooler moments but expect the trend to be one of smart investment breathing extra life into China’s journey to global hi-tech leadership.