‘Too much uncertainty’: Chill descends on Hong Kong equity markets

Equity fundraising in Hong Kong has fallen at the slowest pace since the global financial crisis, with economic and regulatory doubts heightening worries about Chinese companies that once caused a steady pace of lucrative listings.

Total fundraising from early offerings, follow-on share sales and convertible bonds in Hong Kong fell to $4.9 billion in the first three months of 2022, according to Refinitiv data, reflecting a decline up 87% from a year earlier and marking the worst quarter for the city’s equity capital markets since late 2008.

The slowdown underscores investor concerns about injecting fresh capital into Chinese companies at a time when the coronavirus, regulatory uncertainty and war in Ukraine cloud the outlook. Despite a series of big listings this year in Asian markets, there have been few transactions in Hong Kong to date.

Foreign investors sold about $4 billion worth of mainland-traded stocks in the first quarter, while Hong Kong’s Hang Seng index is down nearly 30% from its recent high in February.

“There is too much uncertainty” to go ahead with most listings, according to a Hong Kong-based banker at a Wall Street investment bank. “There’s the tech crackdown, the nationwide lockdowns. . . There are just a lot of concerns overall.

Coronavirus shutdowns in Shanghai, China’s financial capital, have raised the threat of slowing economic growth as Beijing pursues a zero Covid policy, while fund managers weigh the potential effects of the country’s refusal to join Western countries in condemning the Russian invasion of Ukraine.

Hong Kong’s reputation as a financial center has also been dented by the city’s draconian Covid restrictions and the recent resignations of British judges from the territory’s highest court in response to the introduction of a strict security law. national.

A cash crunch at China’s biggest property developers – most of which are listed in Hong Kong – added to concerns, with at least 10 property groups missing a deadline to publish their annual results last week, forcing the stock market city ​​to suspend trading for some .

“If you are a Chinese company going ahead with an overseas 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 benefit from geopolitical tensions between Beijing and Washington, as regulatory repression in both countries made it harder for Chinese companies to list in New York.

Global investment banks have rushed to redirect Chinese IPOs from New York to Hong Kong after Beijing launched its tech crackdown nine months ago in response to the ride-hailing platform’s US listing Didi despite warnings from the Chinese authorities.

As punitive measures by regulators have sent valuations of China’s biggest tech companies plummeting, Goldman Sachs has estimated that more than half of its planned U.S. deals with Chinese firms could move to Chinese territory.

But this pipeline of new deals has yet to materialize. A row between Beijing and the United States over access to audits – which China tried to quell over the weekend by overhauling its strict financial secrecy laws – has also failed to spur another wave of protests. Secondary Offerings in Hong Kong by Companies Seeking a Relief Listing.

“Over the past two years, many big names have already returned to Hong Kong,” said Dickie Wong, head of research at Kingston Securities, pointing to food delivery company Meituan and gaming group NetEase. Wong said US-China tensions were now weighing on Hong Kong-listed stocks rather than generating new business.

The lack of listings added to the woes of the Hong Kong stock exchange, where more than 160 companies failed to file their accounts last week, a sharp increase from around 90 last year. At least 33 Hong Kong-listed companies, including several major Chinese property developers, were forced to suspend operations on Friday, affecting billions of dollars worth of shares.

Most of the companies that were unable to meet the filing deadline cited coronavirus-related travel restrictions that had made it more difficult to complete their audits. There has also been a spate of auditor resignations at Hong Kong-listed Chinese property developers. “In the short term, the optics are not good for Hong Kong,” said GMT’s Stevenson.

Alexandre Tavazzi, global strategist and chief investment officer in Asia for Pictet Wealth Management, said the outsized footprint of Chinese tech and real estate groups in Hong Kong weighed on the city’s stock market in the first quarter, avoiding new listings.

“Anything that happens to these sectors will weigh on the broader market,” he said.

Additional reporting by Chan Ho-him and William Langley in Hong Kong

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