Capital raising for Hong Kong equities has slowed to its slowest pace since the global financial crisis, as economic and regulatory doubts heighten concerns about Chinese companies that once provided lucrative listings.
Total fundraising from initial offerings, follow-on share sales and convertible bonds in Hong Kong fell to $4.9 billion in the first three months of 2022, down 87 percent year-on-year, according to data from Refinitiv, and marking the worst quarter for equity markets of the city since the end of 2008.
The slowdown underscores investors’ concerns about pumping fresh capital into Chinese companies as the coronavirus, regulatory uncertainty and the war in Ukraine cloud the outlook. Despite a series of big listings in Asian markets this year, there has been little business in Hong Kong so far.
Foreign investors sold about $4 billion worth of shares was traded in mainland China in the first quarter, while Hong Kong’s Hang Seng index fell nearly 30 percent from its recent peak last February.
According to a Hong Kong-based banker at a Wall Street investment bank, “there is too much uncertainty” to proceed with most listings. “There’s crackdowns on technology, nationwide lockdowns. . . Overall, there are just a lot of concerns.”
Coronavirus Lockdowns in ShanghaiChina’s financial capital, have raised the risk of a slowdown in economic growth as Beijing pursues a zero-Covid policy, while fund managers weigh the country’s potential impact refusal to join Western countries in condemning the Russian invasion of Ukraine.
Hong Kong’s reputation as a financial hub has also been damaged by the city’s reputation draconian Covid restrictions and the latest resignations of British judges by the territory’s highest court in response to the introduction of a tough national security law.
A liquidity squeeze at China’s biggest property developers – most of which are listed in Hong Kong – has heightened concerns as at least 10 property groups missed a deadline to release full-year results last week, forcing the city’s bourse to do so suspend trading for some.
“If you’re a Chinese company looking for a foreign listing now, it could be a sign of desperation,” said Nigel Stevenson, equity analyst at GMT Research in Hong Kong.
Hong Kong was expected to capitalize on geopolitical tensions between Beijing and Washington, as regulatory crackdowns in both countries made it more difficult for Chinese companies to list in New York.
Global investment banks scramble to divert Chinese IPOs from New York to Hong Kong after Beijing nine months ago in response to the US listing of Ride-on platform Didi Despite warnings from the Chinese authorities.
As punitive measures by the supervisory authorities beat the reviews Of China’s largest tech companies, Goldman Sachs estimated that more than half of its planned US deals for Chinese companies could be shifted to Chinese territory.
But that pipeline of new deals has yet to materialize. A dispute between Beijing and the US over access to audits – which China tried to quash this weekend Revision of its strict financial secrecy laws — has also failed to spur another wave of secondary listings in Hong Kong by companies seeking a replacement listing.
“A lot of big names have already returned to Hong Kong in the last two years,” said Dickie Wong, head of research at Kingston Securities, citing names like food delivery company Meituan and gaming group NetEase. Wong said US-China tensions are now weighing on Hong Kong-listed stocks rather than stimulating new business.
The lack of listings has contributed to troubles in the Hong Kong stock exchange, where more than 160 companies failed to file their accounts last week, up sharply from about 90 last year. At least 33 Hong Kong-listed companies, including several major Chinese real estate developers, were forced to suspend trading on Friday, affecting billions of dollars worth of shares.
Most of the companies that missed the filing deadline cited coronavirus-related travel restrictions that had made it difficult to complete their audits. There were also a number of Resignations of auditors with Chinese real estate developers listed in Hong Kong. “In the short term, the outlook for Hong Kong is not good,” GMT’s Stevenson said.
Alexandre Tavazzi, chief investment officer at Pictet Asset Management, said the outsized presence of Chinese tech and property groups in Hong Kong weighed on the city’s stock market in the first quarter, preventing fresh listings.
“Whatever happens to these sectors will weigh on the broader market,” he said.
Additional reporting by Chan Ho-him and William Langley in Hong Kong
https://www.ft.com/content/27967d99-bea7-4fa9-a20c-a92b9540cb8a ‘Too much uncertainty’: Chill descends on Hong Kong stock markets