PwC Capital Markets Services Group partner Richard Sun says Hong Kong's strong economic fundamentals make it a sought-after fund-raising centre for mainland companies

All indications are that Hong Kong will remain a hot market for IPOs, especially for Chinese mainland companies. Capital-raising exercises have been so successful on the main board that HK$53 billion (US$6.8 billion) was raised in the first half of this year, compared with HK$57 billion (US$7.4 billion) for 2003.

PricewaterhouseCoopers, which forecast in early 2004 that HK$100 billion (US$12.9 billion) would be raised, recently revised its forecast upwards by 15% to HK$115 billion (US$14.8 billion) for the main board and Growth Enterprise Market (GEM), a market for emerging companies. This total includes a forecast of HK$5 billion (US$646 million) for the GEM.  

International financial centre

PwC Capital Markets Services Group Partner Richard Sun says: "The actual performance is now equal to half of the forecast and we are optimistic that the 2004 projection will be surpassed.''

Hong Kong ranks 10th largest in terms of domestic markets capitalisation and Mr Sun says Hong Kong will continue to be an attractive international financial centre along with New York and London. Compared with Hong Kong, IPOs raised HK$56 billion (US$7 billion) on the Nasdaq, while HK$100 billion (US$13 billion) was raised on the NYSE, Mr Sun points out.

Hong Kong also surpassed Shanghai, Shenzhen and Taiwan in terms of IPO funds raised in 2003, a PwC study shows

Strong economic fundamentals drive IPOs

"Hong Kong serves as a platform for mainland companies to raise capital. Following the three largest insurance companies which launched listing plans in Hong Kong, the IPOs of China's four largest commercial banks will be on the way. Many more are expected to come to the market,'' Mr Sun predicts.

"Also, there will be more variety.  Ten years ago, H-share companies were all industrials. But now, they are from a diverse range of industries - insurance, shipping, banks, logistics, sports firms, property developers and others.''

In 2004, the mega Chinese companies that raised capital in Hong Kong included Semiconductor Manufacturing International Corp, insurer Ping An, and China Shipping, the world's 10th largest container carrier.

Many factors make Hong Kong an ideal place for Chinese companies to tap capital. "Strong economic fundamentals are driving the IPOs. China's economy has made very good progress with GDP growth at 8-9% in the past four years. We see a continued expansion of the domestic market and robust growth of foreign direct investment,'' Mr Sun says.

"Another factor is that Hong Kong is riding the boom in the third quarter of 2003. In the first quarter of 2004, the Hang Seng Index reached 14,000 points. In the second quarter, however, there were fluctuations, mainly due to concerns over US interest rates and austerity measures China introduced.''

Now, uncertainties caused by these two factors have eased, he says. "The recent US interest rates increase was 25 basis points and monetary authorities in Hong Kong and China have said there was no urgency to raise interest rates. As far as austerity measures are concerned, mainland officials are saying they are making progress and it is unlikely they will introduce further measures. This also has helped to settle the market.''

Historically, the second half of the year fares better than the first half, Mr Sun says.

Related link
PricewaterhouseCoopers