Spate Of Hong Kong IPOs Provides Glimmer Of Hope For Chinese Investors Amid Week-Long Sell-off

Initial Public Offerings (IPOs) presented a tentative counter-punch to the heavy selling this week in Hong Kong prompted by a rout among property and consumer stocks. Six companies listed on the Hang Seng Index, with Tencent Holdings Limited TCEHY-backed Tuhu Car Inc. and AI giant Beijing Fourth Paradigm Technology Co., Ltd. presenting two of the exchange’s largest listings so far this year.

In addition., mobile game operator ZX Inc. was 103 times oversubscribed, representing Hong Kong’s largest oversubscription to date this year. Wuhan YZY Biopharma Co. Ltd., LC Logistics Inc. and hospital cloud software maker Neusoft Xikang Holdings Inc. also saw oversubscribed offerings.

The week’s IPO frenzy marks a rare moment of new listings activity for the exchange, which has seen deal volume drop 14% and total value raised plunge 61% overall in the first three quarters of the year, according to a recently-published IPO report by Deloitte Consulting.

“Many IPO candidates continue to wait-and-see for a turnaround in market valuations while preparing and planning their offerings,” Deloitte’s analysts wrote about the Hong Kong listings market this year.

Mostly, the drop in deal volume has been the result of a dramatic decrease in the number of secondary listings of mainland-listed A-shares issuers. In 2022, the top five IPOs raised HK$44.7 billion ($5.6 billion), all of which were existing Chinese mainland-listed stocks. This year, just one of the top five company listings falls into that category, which collectively have raised HK$10.8 billion. 2022’s largest issuer, China Tourism Group Duty Free Limited, dwarfed any of the Hang Seng’s year-to-date listings.

Still, the robust demand for Hong Kong equities that are being listed by the exchange represented in this week’s line-up of new stocks shines a bit of a light on an otherwise beleaguered market, which is down nearly 20% year-to-date. Post-IPO trading has, like much of the rest of the exchange’s stocks, been erratic but shows signs of life.

Friday morning, Tuhu Car was 9.3% higher than its listing price, while Beijing Fourth Paradigm was 2.2% lower than its debut. After rising nearly 20% in a matter of days, YZY Biopharma was ending the week marginally lower than its listing price. LC Logistics and Neusoft Xikang were the week’s best and worst performing IPOs, rising 32% and plunging 17%, respectively.

EV & AI Focus

Tuhu Car, this year’s fourth-largest IPO and the eighth to raise over $100 million, provides car maintenance services and plans to ramp up its business on the back of China’s fledgling EV market.

Unlike other areas of the Chinese consumer space, EVs and related businesses are receiving a splurge of investment and government support as China competes to become the world’s de facto number one producer of energy efficient vehicles.

Data released on August sales of global carmakers this week showed that for the first time, BYD Company Limited BYDDY replaced Ford Motor Company F as the world’s fourth-largest automaker, following behind Toyota Motor Corporation TM, Volkswagen AG VWAGY and Honda Motor Co., Ltd HMC.  

Tuhu is China’s largest online community for car owners, with 100 million registered users, one tenth of which it counts as monthly active users, according to the company’s listing prospectus. Tuhu represents Tencent’s first non-medical holding that has undergone an IPO in the last two years. Tencent owns around 18% of the HK$25 billion company which was 2.3x oversubscribed.

Fourth Paradigm, a Chinese enterprise AI developer, was the other major listing on investor’s radars since AI is a sector in which significant investment is pouring into in China right now. The company, which raised around HK$800 million on a similar market value to Tuhu’s, was oversubscribed more than 11x at offering.

To add to the IPO fervor, Alibaba Group Holding Limited BABA said that it was spinning off its Cainiao Smart Logistics Network Limited subsidiary in a $1 billion IPO scheduled for later this year.

China Remains World’s Top Listing Destination

China’s mainland markets remain the largest for new listings in the world, according to data from Deloitte, with the Shanghai Stock Exchange seeing 89 new listings for a combined $25 billion raised and 115 companies raising $18.4 billion on Shenzhen’s tech-focused exchange in the first three quarters of the year. Nasdaq, by comparison, saw 83 companies raise $10.7 billion while the on New York Stock Exchange 18 companies raised $8.23 billion in the same period.

Over-subscriptions on mainland Chinese exchanges have remained robust throughout the year too, despite a drop in the number of listings, with 89% of listings oversubscribed vs. 87% in 2022 and 16% of subscriptions more than 20x oversubscribed up from 16% last year.

The continued new investment appetite on the mainland despite the country’s icy property climate has some foreign investors bullish about the prospects for Chinese asset prices.

PineBridge Investments manager Michael Kelly said this week that his $18 billion fund had turned bullish on the Chinese economy. Kelly brushed off concerns over China’s property malaise in an interview with Bloomberg, saying that the Chinese government has “put in place a mechanism to finance some urban renewal properties” and that he expected “there will be an easing along the way – we expect it to happen before year end.”

“We’re one of the few people in the world with the stomach to say we like China,” Kelly added. “There are less policies that are depressing private-sector confidence than in the last five years. What’s different now is, since November, they’re actually becoming more pragmatic on economic issues.”