Mainland China’s IPO momentum slows in Q1 2019 but 2H 2019 is set to rebound

Shanghai, 28 March 2019

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IPO sentiment in mainland China boosted by the science and technology innovation board, with Hong Kong facing potential new challenges

Mainland China and Hong Kong saw a decrease in IPO activities in Q1 2019. Although both deal number and proceeds are lower when compared to Q1 2018, they are notably up from Q4 2018, suggesting mainland China’s IPO market may be showing signs of recovery. IPO activities are also expected to pick up with China’s announcement that the science and technology innovation board at the Shanghai Stock Exchange will launch during the first half of 2019. This should speed up IPO approval and improve IPO activities in the second half of the year in mainland China. More findings were published today in the EY quarterly report, Global IPO trends: Q1 2019.

According to the report, mainland China saw 30 IPOs raising US$3.7 billion in Q1 2019. By deal number, the Shenzhen Stock Exchange and the Shanghai Stock Exchange ranked the fourth and the sixth, respectively; and ranked the third and the fourth by proceeds, respectively, among global exchanges.

The median post-IPO market cap of companies listed at the Shenzhen Stock Exchange and the Shanghai Stock Exchange saw an increase of 56% to US$563 million on a year-over-year basis while the median deal size was up 5% to US$84.1 million, resulting in a continuous improvement in both market size and market cap. By deal number, industrials continued to dominate IPO activities, followed by financials and health care sectors.

In Q1 2019, the Hong Kong Stock Exchange ranked first by both volume and proceeds, respectively, among global exchanges. Hong Kong’s main market saw a slight increase in IPO activities in Q1 2019 compared with Q1 2018. After a strong IPO year in 2018, the first three months of 2019 have been relatively quiet. EY Asia-Pacific IPO Leader Ringo Choi said, “Despite the negative impact of international trade tension, Hong Kong continues to be an important market for technology IPOs. New-economy companies like pharmaceuticals and pre-revenue biotech and education companies will also continue to attract market attention.”

In mainland China, IPO activities are expected to increase with the launch of the science and technology innovation board and the new registration system for listed companies, especially for advanced manufacturing and high-tech companies. However, Hong Kong may face more challenges as the competition for mega listings may increase. That said, this type of competition can help markets in Hong Kong and Shanghai improve.

EY Greater China IPO Leader Terence Ho said, “Market sentiment should improve following the positive development of the Sino-US trade negotiations, which will uplift IPO activity levels for the rest of the year, but this came a little late to improve IPO activities in Q1. Since the announcement of the new science and technology innovation board in January, the regulator has been working most diligently to have the new board up and running in the first half of 2019. Accordingly, we expect to see a strong second half of the year in Greater China.”

For Hong Kong, 2019 is expected to be comparatively slower with smaller IPO sizes and fewer mega deals. Apart from Shanghai’s new technology board, the competition for mega listings in 2019 against other global exchanges may increase. Also, Hong Kong investors continue to be cautious of new share listings, as they are waiting and seeing how geopolitical uncertainty, trade issues and a potential interest rates hike could impact capital markets. Companies remain optimistic to list on the Hong Kong Stock Exchange with its regulatory reform continuing to play a positive role in attracting IPO activities. Up till now, more than 192 companies have issued Application Proofs.

Terence added, “In mainland China and Hong Kong markets, we anticipate more unicorn IPOs to list in 2019, primarily from technology, media and entertainment and telecommunications, education, consumer products and health care sectors.”

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About the Data

The data presented in the Global IPO trends: Q1 2019 report and press release is from Dealogic and EY. Q1 2019 (i.e., January-March) and 2019 (January-March) is based on priced IPOs as of 15 March 2019 and expected IPOs in March. Data is up to 15 March 2019, 12 p.m. UK time. All data contained in this document is sourced to Dealogic, CB Insights, Crunchbase and EY unless otherwise noted.

This press release has been issued by Ernst & Young, China, a part of the Ernst & Young global organization.