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Tuesday, July 5, 2016, 23:12

Bumpy ride seen for IPOs in volatile H2

By Duan Ting
Bumpy ride seen for IPOs in volatile H2
Financial services companies remain the driving force for the city’s IPO (initial public offering) market in the first half of 2016. (Anthony Kwan / Bloomberg)

Hong Kong may be on track to top the world’s IPO (initial public offering) markets for 2016, but it’s likely to be a bumpy ride on the road to retaining the IPO crown.

Market pundits are optimistic about the outlook for the city’s IPO sector for the second half of this year, with a long queue of enterprises seeking funds, notably from the Chinese mainland, in defiance of continued volatility and uncertainties in the local stock market.

For the first half of the year, there were 40 new listings in the SAR – down 22 percent over the same period in 2015 – raising a total of HK$43.5 billion on year and representing a 66-percent decline year-on-year, according to global consultancy PricewaterhouseCoopers (PwC).

Financial services companies, which bagged 84 percent of the total funds raised on the main board of the Hong Kong Stock Exchange, remain the driving force for the city’s IPO market, followed by retail, consumer goods and services, as well as industrial products, PwC said.

Eddie Wong, partner of capital markets services at PwC Hong Kong, explained that the stagnant IPO activity in the first half of this year was due to investor nervousness over the British referendum to exit the European Union, or Brexit, the pace of US interest-rate hikes, the slowdown in the Chinese mainland economy, and the possibility of further currency devaluations.

Despite a grim global and regional economic picture in the first half of 2016, the volume of IPOs and funds raised in Hong Kong still ensured it continued to top the IPO rankings worldwide during the period, followed by the London Stock Exchange with HK$31.6 billion raised and the New York Stock Exchange with HK$28.8 billion in the bag.

PwC expects Hong Kong to see 130 new IPOs for the whole year, but dialed down its forecast for total funds raised to between HK$220 and HK$250 billion, which may still be sufficient for the SAR to take the top global ranking.

Another audit firm Ernst & Young has forecast 100 IPOs for 2016, raising HK$200 billion, with one or two of them being the world’s largest before yearend.

The nation’s largest unlisted commercial lender Postal Savings Bank of China has been preparing for a Hong Kong share sale, Bloomberg reported on Monday. The IPO, seeking to raise about US$8 billion, may turn out to be the world’s largest for the year.

Wong notes that as Hong Kong IPO activity has relied heavily on mainland enterprises in the past few years, there’ll be little change in the number of businesses interested in going public in Hong Kong. But, uncertainties in the global economy may continue to affect the timing, pricing and performance of IPO launches.

Peter So, managing director and head of research at CCB International Securities (CCBIS), said that given IPO activity is related to market conditions, the market’s performance is expected to be active in the third quarter as funds inflow is expected by then.

“Notwithstanding considerable economic and market uncertainties, we expect the Hang Seng and Hang Seng Enterprise indexes to hit 22,000 and 9,700, respectively, by yearend,” he said.

Bumpy ride seen for IPOs in volatile H2

Hong Hao, chief strategist at BOCOM International Holdings Co, expects the Hang Seng Composite Index to reach 19,000 points this year under the impact of Brexit as the Hong Kong market is liquid and sensitive.

“Amid the uncertainties, the upcoming launch of the (second) stocks ‘through train’ between Hong Kong and the Chinese mainland can breathe new life into the local bourse, but the influence will not be too big as the market has been waiting for the news for so long,” said Andriy Chan, investment director at Nexus Capital Management.

Kenny Wen, a strategist at Sun Hung Kai Financial, expects the Shenzhen-Hong Kong Stock Connect to be up and running as early as July or late into the third quarter this year.

Wong said the second cross-border stocks trading link is good news for both markets, and hopes that newly listed shares in Hong Kong can be included in the project as well.

As for sectors that could be the darlings of investors in the coming months, BOCOM prefers investment topics relating to the policies, economic restructuring, consumption upgrading and emerging technology, as well as big corporations.

According to Wen, the investment focus will be on consumer upgrading, industrial transformation and southbound funds which drive the sectors, such as sports, e-consumer, internet payment, high-en d manufacturing and brokerages.

CCBIS prefers the auto, internet technology, energy, telecommunications, healthcare and mainland property sectors.
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