Mainland and Hong Kong IPO markets to remain subdued in Q4 2023

Deloitte China's Capital Market Services Group (CMSG) today released its analysis of the performance of Chinese Mainland and Hong Kong initial public offering (IPO) markets in the first three quarters of 2023 and forecast for the full year.

Supported by strong performance in Q1-Q2 2023 and the mega listing of a semiconductor manufacturer in August, Shanghai Stock Exchange is expected to have retained 1st place in the global IPO ranking, followed by Shenzhen Stock Exchange with its mega IPO of an energy and resources company and large deal volume on ChiNext.

With the recent listing of a UK semiconductor company becoming the world's largest IPO of the year so far, Nasdaq will have risen into 3rd place. New York Stock Exchange will have been supported by the world's second biggest IPO year-to-date, by a consumer healthcare company, to take 4th place. Abu Dhabi Securities Exchange will have taken 5th place and Stock Exchange of Hong Kong will have ranked 8th.

Following regulatory changes to various aspects of its stock and IPO markets, in particular the reduction in IPO approvals over the last three months, the Chinese Mainland is expected to see fewer IPOs in the remainder of the year. Large and mega listings are likely to be deferred for the time being.

In Hong Kong, the infrastructure and ecosystem for listings by different businesses, including companies in technology and biotechnology, from overseas, and those seeking to raise a large pool of funds or use renminbi (RMB) for settlement, have been enhanced in the last two years. This includes enhancements to Stock Connect, the introduction of the listing regime for special purpose acquisition companies, the launch of dual counter securities, Hong Kong Stock Exchange's new offices in New York and London, various agreements signed with overseas stock exchanges, and the upcoming launch of FINI. However, ongoing US interest rate hikes, global banking turbulence, and the pace of the Chinese economic recovery have kept stock market activity slow and valuations low.

Until some of these factors dissipate or improve, especially US interest rate uncertainties and the pace of the Chinese economic recovery, market valuations are unlikely to pick up. However, given the various reforms in place, a rebound in the Hong Kong IPO market is expected.

By the end of Q3 2023, the CMSG expects the A share market will have had 263 new listings raising RMB323.4 billion, versus 300 IPOs raising RMB485.4 billion in the same period of 2022. This would represent a 12% drop in the number of IPOs and a 33% decline in funds raised.

In the mainland, Shanghai Stock Exchange is expected to have had 89 IPOs raising RMB179.2 billion while Shenzhen Stock Exchange's 115 IPOs will have raised around RMB133.3 billion. Beijing Stock Exchange will have had 59 new listings raising RMB10.9 billion. Shanghai’s STAR Market is expected to have raised the largest amount of IPO funds while ChiNext is set to have recorded the most deals. Proceeds raised in these two markets will have surpassed those raised on the Shanghai and Shenzhen main boards.

"Recently IPOs came at a regular pace based on scientific and rational decision-making to better balance the development of the primary and secondary markets. The recent tightening of IPOs according to stage helps protect the market to operate steadily. The China Securities Regulatory Commission and stock exchanges continue their work on accepting, reviewing, and registering IPOs. We have seen many companies complete IPOs since September," says Tony Tang, A-Share Offering leader, Capital Market Services Group, Deloitte China.

Given these conditions, the CMSG forecasts that for the whole of 2023, the A-share market will record 320 to 370 IPOs raising RMB394 to RMB446 billion, versus last year’s 424 new listings raising RMB586.8 billion. The SSE STAR Market is expected to have 70 to 80 listings raising RMB160 billion to RMB180 billion, followed by ChiNext with 125 to 135 new listings raising RMB150 billion to RMB160 billion. The main boards in Shanghai and Shenzhen will have 50 to 70 IPOs raising RMB70 billion to RMB90 billion, with another 75 to 85 listings raising RMB14 billion to RMB16 billion on Beijing Stock Exchange.

"The solid performance of the Shanghai and Shenzhen stock exchanges in Q3 2023 is likely to sustain unless there are some very prominent deals on other stock exchanges," says Dick Kay, Offering Services leader, Capital Market Services Group, Deloitte China. "We are positive that the previous deepening of capital market reform, in particular the full implementation of the registration-based stock issuance mechanism, will provide good support for the country's economic development."

Hong Kong is expected to have had 44 IPOs raising HKD24.7 billion in the first three quarters of 2023, versus 51 IPOs raising HKD64.0 billion in Q1-Q3 2022. This would represent a 14% drop in deal volume and a 61% plunge in deal value. Only one large offering and two China concept stocks will have listed by the end of Q3 2023.

"The stock market remained weak in Q3 2023 and so did stock valuations because of macroeconomic developments in particular around US interest rate hikes," says Robert Lui, Southern Region Hong Kong Offering Services leader of the Capital Market Services Group, Deloitte China. "Many IPO candidates continue to wait-and-see for a turnaround in market valuations while preparing and planning their offerings. Hong Kong remains their preferred choice given many exciting reforms it has introduced, its unique advantages, especially as the world's largest offshore renminbi hub, free flow of capital with access to international investors, and various Connect schemes with the mainland capital market that facilitate investment links through different products."

"Although the US Fed decided not to lift interest rates following its meeting earlier this week, it has indicated another rise later this year and is set to maintain a high interest rate for longer. This will add uncertainty and affect the listing windows of potential issuers in Hong Kong," says Edward Au, Southern Region managing partner, Deloitte China.

Together with a heavy base of IPO companies from the mainland where the economic recovery is still underway, for the full year the CMSG expects Hong Kong’s IPO market could hit its lowest fundraising level for 11 years.

"As we wait for market fundamentals to improve, it is a good time to think about how to attract and get more overseas companies to list in Hong Kong on top of signing agreements with other foreign stock exchanges,” adds Au. "Hong Kong might consider including expanding the market and further enhancing the connectivity with the mainland market, enriching RMB-denominated investment products, attracting more funds from mainland and other markets, and establishing a multi-tier and diverse IPO market.

“The capital market should change in a way that can help professional investors, venture capital and private equity investors to unleash and drive the market to support the Hong Kong IPO market and its ecosystem for long-term, healthier development."

Chinese companies continued to float stocks in the US in Q3 as delisting risks were mitigated. Twenty-five companies will have listed in Q1-Q3 2023 raising USD651 million, against 13 deals raising USD449 million in Q1-Q3 2022. This would represent a 92% surge in deal volume and a 45% rise in proceeds raised.

"We are positive that Chinese companies will continue to list in the US in the remainder of 2023 given the recent IPO regulation changes in the mainland," says Allen Lau, Capital Market Services Group leader, Deloitte China. "The US market is another option, especially for companies looking to expand in the global market and gain access to international professional investors as they wait for Hong Kong market valuations to pick up."

Notes to editors:
Unless specified otherwise, all statistics are updated with our estimates and analysis as of 30 September 2023.

Sources for A-share IPO statistics: the China Securities Regulatory Commission, Shanghai Stock Exchange, Shenzhen Stock Exchange, Beijing Stock Exchange, Deloitte estimates and analysis.

Sources for Hong Kong IPO statistics: the Stock Exchange of Hong Kong, Deloitte estimates and analysis; excludes GEM to MB transfers and SPAC listings.

Sources for US IPO (Chinese companies) statistics: New York Stock Exchange, Nasdaq, Bloomberg, and Deloitte estimates analysis.