Hong Kong’s IPO revival is ‘inevitable’ as applications jump, CEO says

Listing applications have surged in Hong Kong, as the rising flow of investment funds in Asia’s third-largest stock market creates the perfect condition for Hong Kong Exchanges and Clearing Limited (HKEX), said its chief executive.

Hong Kong is back on global investments radar, after the announcement last month by the China Securities Regulatory Commission (CSRC) that would facilitate Hong Kong listings by leading Chinese companies. The regulator also announced the expansion of the Stock Connect cross-border investment scheme to enhance the city’s status as an international financial centre.

“The new measures are beginning to attract fund flows in the market, and turnover has risen, creating a more favourable environment for companies to launch their new listings,” said the HKEX’s chief executive Bonnie Chan Yiting, during the Capital Markets Forum at the exchange’s Connect Hall.

“It is just a matter of time [before] some of the biggest Middle East companies will launch initial public offerings (IPOs) raising funds in Hong Kong,” she said, adding that the emergence of mainland China’s industry leaders on the city’s bourse is “inevitable.”

HKEX, the world’s top IPO destination seven times between 2009 and 2019, has received more than 100 listing applications this year, with first-quarter applications rising by 30 per cent from last year to 60 bids, Chan said.

That is good news for the exchange, which fell to 10th place globally, after fundraising by 12 companies fell 29 per cent to US$604.4 million in the first three months of this year. That was the least amount raised since the US$580 million generated in the second quarter of 2022 and the worst first-quarter performance in 15 years and follows the Hong Kong benchmark Hang Seng Index’s 35 per cent decline over the past three years.

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There is light at the end of the tunnel, as the CSRC’s new rules have already helped the Hang Seng Index gain by almost 8 per cent over the past month, Chan said. The run-up had now spilled over to this month with the index having risen about 5 per cent.

Chan is confident about growing Middle Eastern participation in Hong Kong’s IPO market and points to the attendance at the Capital Markets Forum. The forum, co-hosted by HKEX and Saudi Tadawul Group, the parent of Saudi Exchange, was held at the Stock Exchange Connect Hall, which housed the stock exchange’s trading hall until 2017, before it went electronic.

“The forum in Hong Kong provides a platform for investors and companies executives from the Middle East and China to discuss possible deals,” Chan said. “Hopefully, some of these talks would become deals or even IPOs, which will further strengthen Hong Kong’s role as a connector between mainland China and the Middle East.”

Saudi Arabian companies such as oil giant Aramco are eligible to apply for a secondary listing in the city after the HKEX added the Saudi Exchange, or Tadawul, to its list of recognised bourses in September.

Last November, CSOP Saudi Arabia ETF, the first exchange-traded fund in Asia that tracks the Middle East’s biggest companies including Aramco, listed on the Hong Kong exchange.

“The [oil reliant] kingdom of Saudi Arabia is diversifying its economy by developing new sectors of high technology and other manufacturing industries. This presents a lot of interesting investment opportunities for investors in our side of the world,” Chan said.

She said this was a perfect opportunity for investors in the world’s second-biggest economy.

“We are looking at mainland China, which has a very fast-growing middle-class population, and they are also looking for diversification of investments.”

Hong Kong will play a key connecting role between the two sides, as international companies listed in Hong Kong are already traded by mainland investors through the Stock Connect schemes, she said. These connect schemes, started in 2014, allow cross-border trading in stocks, bonds, and other products.

“For some of the Middle East and international corporations, looking at potential listings in Hong Kong is really a very attractive offer,” she said. “It is unique because only Hong Kong has the Connect scheme.”