Semafor Signals
An IPO slowdown is hurting Hong Kong’s already weak stock market
Insights from The Wall Street Journal, Reuters, SCMP, and Nikkei Asia
The News
The Hong Kong stock market rang in the new year with prices continuing to slump, following an exodus of foreign investors fueled in part by a regulatory crackdown in China.
Another problem for Hong Kong is that fewer companies are going public, and those that do are raising less money. The city’s new listings last year raised $5.9 billion, the lowest figure in more than 20 years. While larger companies can afford to wait for the market to recover before they go public, smaller businesses have been forced to take cost-cutting measures in the interim.
SIGNALS
When China slumps, Hong Kong follows
Hong Kong’s stock market is often seen as a proxy for the Chinese economy, which is currently experiencing a real estate crisis, struggling with high levels of debt, and dealing with the fallout of increasing geopolitical tensions with the U.S. When it comes to listing new Chinese companies, “investment bankers say things can’t get much worse,” The Wall Street Journal reported.
Wary of having too much exposure to an increasingly isolated China, foreign investors are taking steps to reduce their exposure to the nation. That directly affects Hong Kong, Reuters reported, since many people access Chinese shares via the city’s stock exchange.
Mumbai overtakes Hong Kong in number of IPO listings
Hong Kong once rivaled the number of IPOs New York listed each year, but now, Mumbai is listing more companies than the city. In November, the Indian stock exchange reported an overall market capitalization larger than Hong Kong’s for the first time. The excitement around India’s IPO market is so potent that some are worried the country is nearing “irrational exuberance,” which is the phrase former U.S. Federal Reserve chair Alan Greenspan used in 1996 as the dotcom bubble began to inflate. “The small- and mid-cap frenzy is encouraging a lot of smaller firms to list and get that extraordinary jump in valuation,” a finance expert told Nikkei Asia.
There’s “no easy answer” to Hong Kong’s woes
“The only solution to this is just a reversal of these trends, i.e. a better economy and better foreign relations,” a U.K.-based asset manager told Reuters. “There is no easy answer.”
Some experts have suggested that China needs to play a larger role in managing Hong Kong’s recovery from the pandemic. ”Beijing has to recognize the severity of the issue and to take concrete measures to shore up confidence in the Hong Kong market,” columnist Zhou Xin wrote for The South China Morning Post. Lowering the threshold for mainland investors to move money to Hong Kong could be one route, he said.
