Stock exchanges in Greater China — including Hong Kong, Shanghai and Shenzhen — have raised a combined $123 billion through hundreds of new corporate listings so far this year, according to data compiled by research firm Dealogic.
The combined might of Hong Kong and mainland China has long made the region a popular destination for IPOs, though that’s largely because of how free and open Hong Kong is to investment.
This year, though, Shanghai is far more of a heavyweight than it has been in the past. The $61 billion that has been raised so far in 2020 through public offerings on the city’s exchange is more than triple the total raised by this point in 2019, according to Dealogic.
Shanghai has so much momentum, in fact, that its stock exchange is likely to rank No. 1 in the world for IPOs this year, according to estimates from global accountancy firm Deloitte. (Dealogic, which does not issue year-end projections, says the Chinese city’s exchange has never held that distinction.)
“We fully expect Shanghai Stock Exchange to secure the crown jewel in the global ranking [of IPO venues] by the end of 2020,” Edward Au, managing partner of Deloitte China’s southern region, told CNN Business. Hong Kong will likely rank second overall, he predicts.
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Raising Shanghai’s profile
Historically, companies that list in Shanghai have been big, state-owned banks, energy and real estate firms. Other major Chinese businesses, especially those in tech, usually turn to Wall Street or Hong Kong to find investors because of barriers to listing in the mainland, including a prohibition on dual-class shares, which give corporate executives more power.
“We need to encourage and support ‘hard technology’ firms to list” on the Star Market, Xi said during a visit to Shanghai last November. He cited a desire to “break the foreign stranglehold on us in certain key technologies.”
In the 15 months since the Star Market launched, nearly 200 companies have listed and raised a combined $40 billion — not counting Ant Group. After the financial tech firm completes its listing, the Star Market will have accounted for 60% of mainland China’s IPO market this year.
Hong Kong remains vital
Hong Kong, meanwhile, remains home to one of the region’s most important stock exchanges — and has become a popular “compromise” for Chinese companies that already trade overseas but want stronger roots closer to home, according to Brock Silvers, chief investment officer for Kaiyuan Capital, a private equity fund based in Shanghai.
Hang Seng Indexes also changed rules in May to allow companies that have chosen Hong Kong for their secondary listing to appear on the city’s benchmark index. That paved the way for the index to add Alibaba and Xiaomi as Hang Seng constituents in September.
China might not be on top for long
Shanghai’s IPO dominance — along with that of Greater China — might be fleeting, though.
Silvers, of Kaiyuan Capital, noted that mainland Chinese markets remain a lot less open than others.
Beijing still maintains strict control over capital in China. The yuan is also not freely convertible, and the legal environment in China is not a favorite of international business.
Silvers added that there are only so many “homegrown champions” who can return to China and launch public offerings.
“Local markets may still require significant further opening measures before established non-Chinese companies begin to seek listings,” he said, adding that for the current trend to continue, China’s appeal has to extend far beyond the subset of big Chinese firms that are listing.
Silvers outlined three scenarios: The trend of Chinese companies coming home to list could either fade, or extend to mid-sized Chinese companies overseas. Beijing could also build on its momentum to “further open and internationalize.”