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Mainland China, Hong Kong IPO markets to remain strong in rest of 2021

Mainland China and Hong Kong, among the world's top listing destinations, are looking at a busy calendar for IPOs in the second half of 2021, after funds raised globally via share sales in the first six months surpassed the amount raised during any half-yearly period in the last five years.

Investors continue to favor equities as the global economy recovers from the COVID-19 pandemic. Asia's top stock exchanges are attracting new economy companies, especially in the technology, media and telecommunications, or TMT, sector. The "homecoming" trend of Chinese companies listed in the U.S. but seeking a secondary listing in Hong Kong amid heightened Sino-American tensions also continues, according to separate reports by KPMG and Ernst & Young.

Bourses operated by Hong Kong Exchanges and Clearing Ltd. and The Shanghai Stock Exchange Ltd. ranked third and fourth, respectively, in terms of IPO proceeds for the first six months of 2021, according to estimates by both accounting firms. Hong Kong Exchanges helped companies raise US$26 billion in the first half, while Shanghai Stock Exchange hosted share sales worth US$20.6 billion, KPMG said in a June 28 report. Funds raised globally jumped nearly threefold to US$210 billion in the first six months of 2021, from US$71 billion in the same period last year, KPMG said.

"High levels of market liquidity and solid investor sentiment are supporting the global IPO market, which stayed active in the first half of the year. ... We expect active global IPO activities to continue in the second half of 2021," said Paul Lau, head of capital markets at KPMG China.

Diplomatic tensions between Beijing and Washington have driven some mainland companies to drop their U.S. listing plans and debut in Hong Kong instead, or consider secondary listings in the city. China was the first major economy to recover from the pandemic, which boosted listing activity in the mainland in the first half of 2021.

TMT to the fore

IPOs, both in mainland China and in Hong Kong, will continue to be led by the TMT and advanced industrials sectors, with those industries making up over 68% of the pipeline, according to KPMG. Shanghai's STAR Market and Shenzhen Stock Exchange's ChiNext board were popular choices for companies in the TMT, biotechnology and medical industries. Hong Kong will likely continue to see more U.S.-listed Chinese companies amid high demand from local investors for such secondary listings.

Kuaishou Technology was the biggest share sale so far this year, raising US$6.2 billion in Hong Kong, and JD Logistics Inc. ranked fourth with US$3.6 billion raised. China Three Gorges Renewables (Group) Co. Ltd. ranked fifth for its Shanghai listing, while the homecoming secondary listings of Baidu Inc. and Bilibili Inc. placed sixth and seventh.

Mainland China and Hong Kong securities regulators have made listing rules more stringent recently. The China Securities Regulatory Commission on April 16 announced that it would tighten scrutiny on its STAR Market to ensure that technology is the main business of companies seeking to list on the science and technology innovation board.

Hong Kong Exchanges announced a 60% hike in the profit requirement for companies to list. From Jan. 1, 2022, a company will need to show it made a profit of at least HK$80 million before seeking to list in Hong Kong, according to a May 20 announcement.

The new requirement may lead to an acceleration of IPO applications in the second half of this year but will not have a "major impact on total funds raised" as this rule only applies to small cap companies, said Louis Lau, partner, capital markets advisory group at KPMG China.

Driven by China concepts stocks, or companies with significant business in mainland China, and IPO system reform by the HKEX in recent years, funds raised from the IPOs in Hong Kong hit a new high in the first half of 2021, Jacky Lai, Hong Kong assurance partner at EY said June 24. More than 80% of IPOs in the city in the same period were from the mainland, with proceeds accounting for 97.5% of the total, according to EY.

Helped by the Stock Connect mutual market access program between the Hong Kong, Shanghai and Shenzhen exchanges and a simplified listing system for overseas issuers, "the IPO market in Hong Kong is expected to become more attractive and competitive," Lai said.