HK remains the top IPO market

Hong Kong is expected to remain the world's largest initial public offering market in 2016, backed by the large amounts of money raised by Chinese mainland financial services institutions, according to the new research report from global audit and advisory firm Deloitte.

The advisory firm forecast a total of 115 IPOs raising about HK$200 billion ($25.8 billion) for the entire year of 2016 in Hong Kong. Both of the figures will be less than last year, affected by the likely interest hike from the US Federal Reserve, the slowing down of the Chinese economy, and the uncertainties brought by the US elections and Brexit.

Despite the gloomy global environment, Hong Kong still maintains its place as the world's largest IPO market in the first three quarters. Statistics showed that there were 71 IPOs in Hong Kong market in January through September, raising about HK$136.4 billion. Notably, 84 percent of the funds raised were from Chinese mainland financial services institutions, a significant jump from 49 percent last year.

Deloitte believes that capital inflows to the Hong Kong market will continue to increase in the fourth quarter, after the renminbi was added to the International Monetary Fund's Special Drawing Right (SDR) basket, and investment from mainland's insurance companies was allowed by the Shanghai-Hong Kong stock connect.

"There are three to four jumbo IPOs planned for the Hong Kong market in the last quarter, including a securities group and a pharmaceutical group, each targeting to raise at least HK$7.8 billion, so Hong Kong is going to see its IPO leadership further cemented," Edward Au Chun-Hing, co-leader of the National Public Offering Group at Deloitte China said.

In comparison to Hong Kong's strong growing momentum in the fourth quarter, IPO activities in Shanghai and Shenzhen are anticipated to be stable due to efforts by the authorities to regulate the stock market, even though there are some encouraging developments, including MSCI's creation of 20 indexes that include A-shares, the upcoming launch of Shenzhen-Hong Kong Stock Connect, and the renminbi's inclusion in SDR.

By the end of the third quarter, both Shanghai and Shenzhen markets together will have completed 120 IPOs, raising about 74.9 billion yuan ($11.3 billion), both figures significantly reduced from the same period of last year. Shanghai's IPO market ranked the third globally, following by that in New York, but the Shenzhen market dropped out of the top five rankings.

Deloitte forecasts that about 180 to 220 IPOs will be completed to raise 86 to 106 billion yuan in the A-share market by the end of 2016.

"The introduction of a registration-based system for new shares is postponed in the mainland market, and many IPOs in the fourth quarter will still be some manufacturing and technology companies with small and medium scale, so we believe the mainland's IPO activities are likely to move in a similar direction and pace as earlier this year," said Au.