After having claimed the top spot as the world’s largest initial public offering (IPO) market in 2019, the Hong Kong Exchanges and Clearing (HKEX) faces an uphill battle in 2020 to repeat the feat as markets globally take a battering due to the emergence of Covid-19 and the drop in oil prices.
Despite the difficult market conditions and volatile investor sentiment, first-quarter 2020 market numbers reveal that the HKEX saw a 6% increase in the number of deals executed over the same period last year, in large part due to the positive sentiment carried over from the end of 2019.
However, proceeds from those deals fell by 32% compared to the same period in 2019, dropping the HKEX to fifth in terms of funds raised globally. Overall, Chinese equity capital market deal proceeds were down 16% in March 2020 compared to the same month last year, according to data from Refinitiv.
In February 2020, there were no IPOs from mainland Chinese companies at the HKEX with some candidates choosing to postpone their listings due to global uncertainty. Nevertheless, Beijing-based cancer drug developer InnoCare Pharma bucked the trend in March raising US$298 million on the HKEX, listing at the high end of the pricing range. Riding the wave of positive investor sentiment on the healthcare sector, InnoCare Pharma’s retail tranche was almost 300 times oversubscribed.
“Despite market uncertainties, the new economy, technology, healthcare, and life sciences will remain attractive as Covid-19 has drawn investors’ attention to the urgent need to drive R&D [research and development] for better technologies, whether in diagnostics, treatment or supporting recovery for patients facing disease,” says Irene Chu, partner, head of new economy and life sciences at KPMG China.
Along with HKEX’s consultation paper on corporate weighted voting rights (WVR) beneficiaries, there could be light at the end of the tunnel for the exchange as the newly purposed rules could attract additional issuers to list in the city.
“If this policy is approved and implemented, we expect that some mega-IPOs with a corporate WVR structure will come to the market in the second half of 2020,” states Ringo Choi, Asia Pacific IPO leader at EY. “Additionally, the valuation of the HKEX remains relatively low compared to the other major markets. This may drive an increase in investor demand, which would bode well for IPO activity in Hong Kong.”