Glum Hong Kong dealmakers pin hopes on China’s Congress to revive economy and IPOs

Glum Hong Kong dealmakers pin hopes on China’s Congress to revive economy and IPOs

By Scott Murdoch

HONG KONG (Reuters) – Hong Kong dealmakers expect the 20th Party Congress in China next week to announce a shift in focus in Beijing once again toward trade and economic issues that could help revive the city’s initial public offering issuance from a nine-year low. .

The gradual COVID-19 shutdowns have been blamed for significantly slowing China’s economic growth, shutting it off from the rest of the world and undermining investors’ appetite for buying in Chinese assets.

Lawyers and analysts said any shift toward opening China’s borders and stimulating demand there would boost confidence and business transactions. Hong Kong has only recently begun to reopen, easing its stringent virus policies that have tarnished its credentials as a global financial center.

“I hope the global economic situation will improve next year, and I expect to see a greater focus on business and economic issues in China after the 20th Party Congress,” said Richard Wang, Freshfields partner in Hong Kong, adding that this will lead to more businesses. Looking to raise capital.

Hong Kong’s initial public offering (IPO) activity, traditionally dominated by mainland firms, has fallen to a nine-year low amid slumping Chinese markets, escalating Sino-US tensions and a tightening regulatory environment in China.

International listing ambitions have stalled since China instituted new rules, not yet finalized, for companies wanting to sell shares outside mainland markets.

There were just $9.28 billion in initial public offerings in Hong Kong this year, down from $37.1 billion in the same period in 2021, according to Refinitiv figures. The value of new stock sales is the lowest since 2013.

Moreover, more than 80% of Hong Kong’s initial public offerings this year have been underwater since their debut, according to Dealogic data.

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Initial public offerings on mainland China raised $54.12 billion, down 33% from $80.89 billion in the first three quarters of 2022, according to Refinitiv data. However, the data showed that the Shanghai and Shenzhen stock exchanges are the most active IPO markets in the world.

“People expect things to open up after the meeting, but in terms of timing when you see that, it’s not going to be an overnight change,” said Stephanie Tang, partner at law firm Hogan Lovells.

“How this will develop, there is not one single defining factor but a reasonable expectation is that we will see progress in deal activity from late 2022 through the spring of 2023.”

However, most economists doubt that Chinese policymakers will provide any concrete signs soon to ease the zero-COVID policy or a roadmap for reopening borders.

Coronavirus infections are at their highest level since August, and an estimated 36 cities are under lockdown or some form of control ahead of the meeting that begins on Sunday.

Lawyers said greater policy certainty in areas such as technology and education could only become evident after the two annual sessions of China’s parliament in March.

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