A-Share IPO momentum outshines other markets

HONG KONG, Sept. 29, 2022 /PRNewswire/ -- Geopolitical and economic uncertainties continue to weigh on global markets, with proceeds from initial public offerings (IPO) in the United States and Hong Kong dropping by 94% and 76% respectively during the first nine months of the year compared to the same period in 2021, according to KPMG China's 2022 Q3 review of the Mainland China and Hong Kong IPO markets. On the upside, Hong Kong saw an increase in IPO activities during the third quarter, with 27 IPOs raising a total of USD 6.6 billion, more than twice the proceeds raised during the first two quarters of 2022.

Paul Lau, Partner, Head of Capital Markets and Professional Practice, KPMG China, says: "Inflation, interest rate hikes and geopolitical uncertainty all contributed to the slowdown in the global IPO market, and these market uncertainties are likely to remain in the short term. Many companies are taking a wait-and-see approach to their listing plan, resulting in the postponement of some IPOs."

In the third quarter, Hong Kong saw two sizable IPOs, each raising over HKD10 billion. Homecoming listings remained a pillar of the Hong Kong capital markets this year. 8 US-listed Chinese companies have listed in Hong Kong in the first 9 months of 2022 compared to an annual total of 9 in 2020 and 8 in 2021. These 8 homecoming listings have a combined market capitalisation of over HKD470.0 billion, contributing more than 30% of total IPOs' market capitalisation year to date.

Local authorities are now reviewing the rules needed to accommodate listings of specialist tech enterprises that are still in their early stages of commercialisation. Market consultation of the new regime for these specialist technology companies is expected to be released in the coming weeks with the aim to finalise the rule changes by as early as the end of 2022.  This could provide access to the Hong Kong market for large-scale tech companies in sectors ranging from AI, semiconductors, cloud computing, robotics to new energy who currently do not meet the listing requirements.

Also boding well for Hong Kong was the steady start of the SPAC regime with 14 special purpose acquisition companies submitting IPO applications, of which 4 have listed. These SPACs are seeking to target high growth, innovative and new economy companies, which will add more momentum to the Hong Kong market in the coming year and beyond.

In the meantime, the city continues to develop a fund-raising and investment ecosystem for biotech firms. Life science listings and homecoming listings will remain the main focus for IPOs in Hong Kong. With a healthy pipeline of over 130 applicants, the city's IPO market is expected to strengthen further as uncertainties diminish over time.

Irene Chu, Partner, Head of New Economy and Life Sciences, KPMG China, says: "Hong Kong continues its efforts to enhance its listing framework and adapt to the latest market developments as an international financial centre. With an ever-increasing focus on technology, regulators are considering adding flexibility to its listing regime in order to better serve specialist technology companies, allowing capital markets to channel much needed funds into these high-growth, innovative firms for further research and development."

Capital markets in Mainland China continue to outperform other markets in terms of capital raised. The Shanghai Stock Exchange and the Shenzhen Stock Exchange raised a combined 505.3 billion yuan from new listings in the first nine months of the year, a 24% increase compared to the same period last year. These two A-share markets represented more than 50% of total global IPO proceeds for the first 3 quarters of the year.

Louis Lau, Partner, Capital Markets, KPMG China, says: "A-share IPO activities have reached a historical high in terms of funds raised for the first nine months of the year and the country's capital markets are expected to remain a global bright spot despite current market conditions."

For the year to date, more than two-thirds of the total proceeds in the A-share market were contributed by the STAR Market and ChiNext which have a focus on high growth and technology companies.

About KPMG China

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