At least three healthcare companies have delayed or canceled plans to list on the Hong Kong stock exchange in the past five months amid rising market uncertainty.
Financial market sentiment is being weighed down mainly by an escalation in U.S.-China trade tensions, slowing economic growth and volatile exchange rates, experts said. Local protests that started in June against a controversial bill permitting extraditions to China are also making investors wary about capital markets.
In July, Chinese vaccine maker Liaoning Chengda Biotechnology CO.LTD. announced it is shelving plans to list in Hong Kong because of "changing market conditions."
Hong Kong tycoon Li Ka-shing-backed Hutchison China MediTech Ltd. also cited a similar reason for delaying listing plans. In a second-quarter earnings call July 30, Chi-Med CEO Christian Hogg said the market "is a bit shaky with all the protests."
Meanwhile, medical equipment maker Qingdao Haier Biomedical Holdings Co. Ltd. decided in April to cancel a Hong Kong float and instead, opted to list on Shanghai's Star board, a trading board launched in June for technologically ambitious companies.
Hong Kong has been eager to attract more listings, and in April 2018, relaxed rules allowing prerevenue biotech companies to float. Since then, 8 prerevenue biotech companies from China have made their public debuts, raising a total of HK$23.5 billion.
Despite the immense growth potential of China's healthcare market, at least for now, the appetite for investing is being "held hostage to the current unpleasantness," said Steve Vickers, CEO of Steve Vickers and Associates, a political and corporate risk advisory in Hong Kong, referring to the ongoing local protests. Vickers is also former head of the Royal Hong Kong Police Criminal Intelligence Bureau.
Vickers, whose company advises and offers due diligence services to companies seeking to list, said his company's IPO-related business was "off a little" in the second quarter after a rush earlier this year among clients hoping to go public.
"Clearly, current sentiment is poor. Whether this is simply a short-term phenomenon or not remains to be seen and will, to a certain extent, relate to the ongoing civil disturbances in Hong Kong and how long they continue," he said in an interview.
The protests, now entering their 11th week, are against a bill that would allow suspects in Hong Kong to be sent to the mainland to stand trial. The proposed regulation has triggered several anti-bill rallies, a general strike and in recent weeks, increasingly violent clashes between some protesters and police.
Trade war tensions
Another factor contributing to market gloom is the intensifying trade spat between the U.S. and China since last year, which has dimmed investors' risk appetite.
On Aug. 5, the U.S. ratcheted up the pressure by labeling China a currency manipulator after China let the yuan slide below a key benchmark of 7 to the dollar for the first time since 2008.
Investors are concerned there will be more trade retaliation from both sides.
Between the end of April and July-end, about HK$2.2 trillion was wiped off Hong Kong's stock market capitalization, while the benchmark Hang Seng index dropped about 6.47%, according to stock exchange data.
Apart from healthcare IPOs, global beer manufacturer Anheuser-Busch InBev SA, also pulled the $9.8 billion IPO of Asia unit Budweiser Brewing Company APAC Ltd., while logistics developer ESR Cayman Ltd. also delayed listing plans.
In 2018, Hong Kong was crowned the largest IPO market in the world, with a record 208 offerings raising about HK$300 billion. This year, however, deteriorating U.S.-China relations, poor performance of markets, and other economic factors are keeping the outlook for IPOs subdued, Vickers said.
Iris Pang, economist for Greater China at ING Group, agreed the trade dispute is adding to market uncertainty, noting the outlook for new listings is linked to the performance of the Hang Seng index.
Adding to concerns is the fact Hong Kong's economy also expanded by a mere 0.6% in the second quarter of this year, compared to an annual growth of 3% in 2018.
"Many people are currently bearish on new issues and are becoming somewhat leery about the Hong Kong market," Vickers said.