2023 was undoubtedly a challenging year for Hong Kong IPO activity. IPO proceeds declined for the third year in a row, falling 33 percent from US$8.5 billion in 2022 to US$5.7 billion in 2023. Hong Kong's Hang Seng Index fell by almost 14 percent in 2023. And India briefly overtook Hong Kong in January 2024 in terms of stock market capitalization.

View full image: Hong Kong IPO deal value, 2017 – 2023 (PDF)

Facing macroeconomic challenges, interest rate hikes and a weaker-than-expected growth outlook, global investors diversified their allocations for Asia-Pacific to other jurisdictions, with India and Japan among the beneficiaries. Moreover, a weaker renminbi has raised concerns among international investors about the impact of changes in the exchange rate on the earnings of mainland Chinese companies listed in Hong Kong and their share prices.

The Hong Kong market has also seen a subdued number of blockbuster IPOs, with many companies putting their listing plans on hold until market sentiment and valuation improve. In March 2024, Cainiao Smart Logistics Network, the logistics arm of the Alibaba Group, withdrew its application for an IPO that was widely anticipated to raise at least US$1 billion.

However, the Hong Kong market has remained resilient in the sense that many companies are still seeking to list on the Hong Kong Stock Exchange. In 2023, there were 66 IPOs and, while it represented a 10 percent decrease from the prior year, it reflected a robust level of activity amid market challenges. We continue to see a growing pipeline of mid-sized companies seeking a listing in Hong Kong. Despite a subdued level of valuation, many of these companies remain confident in the international status and global expansion opportunities offered by a listing on the Hong Kong Stock Exchange. This is particularly appealing to mainland China enterprises seeking to "go out" and expand internationally.

View full image: Hong Kong IPO count, 2017 – 2023 (PDF)

An improving outlook

A critical factor to improving stock market performance is investors having a positive outlook on the market, which has a direct correlation to the amount of fund inflow. After a challenging year, advisers, investors and companies are reasonably hopeful that Hong Kong IPO activity will improve in 2024, as global inflationary and interest rate pressures show signs of subsiding, additional policies are put into place to stimulate and support the economy of mainland China, and a series of listing regime initiatives are implemented to encourage more IPO candidates to pursue Hong Kong listings. Capital from global and domestic markets flowing back into equities will benefit liquidity and valuations.

Furthermore, IPO activity is expected to potentially be lifted by regulatory initiatives that will make Hong Kong a more competitive listing venue. In August 2023, the Hong Kong government established the Task Force on Enhancing Stock Market Liquidity to comprehensively review the factors affecting market liquidity, including the listing regime, market structure and trading mechanism. The Hong Kong regulators are actively implementing measures proposed by the task force and are considering an array of measures to boost market efficiency and liquidity, including: (i) enhancing the listing regime; (ii) improving the transaction mechanism; and (iii) boosting investor services.

View full image: Top 10 IPOs, Hong Kong Stock Exchange, by deal value, in 2023 (PDF)

An international perspective

Hong Kong has also taken steps to deepen its cross-border relationships with strategically important global partners. It has strengthened ties with the Middle East and Southeast Asia and included Saudi Arabia and Indonesia's bourses on its recognized list of international stock exchanges, paving the way for secondary and cross-border listings between the jurisdictions. International companies from these regions stand to benefit from accessing Hong Kong's global investor base, and Hong Kong investors will have access to a broader array of investment options, according to the Hong Kong Stock Exchange.

The global initiative has already started to bear fruit, with Asia's first-ever Saudi Arabia exchange traded fund listing in Hong Kong at the end of 2023. The listing secured US$1 billion in upfront investment, making it one of the largest market debuts in Hong Kong, according to the Financial Times.

A clear pathway

As an offshore jurisdiction, Hong Kong is expected to benefit from changes to the China Securities Regulatory Commission's rules on the clearances required by mainland Chinese companies seeking listings in offshore jurisdictions.

The new offshore filing regime was implemented in March 2023. While there were initially some delays as a result of its implementation, over time, the new regime has provided mainland Chinese issuers considering offshore listings more clarity and created a more stable pathway to raising capital offshore. On numerous occasions, the Chinese regulators have reaffirmed their position to support offshore listings, and many local governments are reportedly offering cash incentives to mainland Chinese companies that have achieved a successful offshore listing.

Hong Kong is well-placed to capitalize on its unique role as the offshore market with the closest ties to mainland China and its position as one of the world’s largest international financial centers, offering mainland Chinese businesses international exposure and opportunities to expand globally.