Shanghai may overtake Hong Kong as the world’s second largest market for initial public offerings (IPOs), accounting firm Ernst & Young (EY) said Wednesday.
That could happen in 2015 if China fully opens its IPO tap, which would vault the Shanghai Stock Exchange (SSE) past the Hong Kong bourse, it said.
The Hong Kong stock exchange, which is operated by HKEx Ltd. (00338.HK, HKEx), is the world’s second largest IPO market behind the New York Stock Exchange (NYSE).
Technology-heavy NASDAQ is third, unchanged from last year.
Ringo Choi, Asia Pacific IPO leader of the accounting giant, said NYSE is likely to remain as the hottest IPO destination on the back of a reviving United States economy.
China may dislodge Hong Kong in 2015 “if the A-share market is fully open”, he said.
“It absolutely has the ability to overtake Hong Kong in both capital raised and the number of IPO deals,” Choi said.
“We can see that more than 600 companies are lining up to raise capital. Some of them have a price-to-earnings ratio of 30.”
Choi said the Shenzhen Stock Exchange has a better chance of getting more IPO deals than Hong Kong, but SSE is likely to see bigger IPOs.
“The Shanghai market is specialized in big projects while the market in Shenzhen mainly focuses on the growth enterprise market or small and medium enterprises,” Choi said.
Shenzhen could outstrip Hong Kong but Shanghai will raise more capital, he said.
The A-share market had 127 IPOs in 2014, raising 80.8 billion yuan (US$13.03 billion), after trading resumed following an 18-month suspension amid reform.
The market was again closed in February and reopened in June.
In 2014, Hong Kong IPOs raised HK$220 billion, up 32 percent, with the number of deals climbing 11 percent to 108.
The IPO markets in the US and Hong Kong are mainly driven by Chinese issuers such as tech giant Alibaba and property developer Dalian Wanda, respectively.
Hong Kong is expected to raise about HK$200 billion in 120 IPOs in 2015, which means less capital raised but more deals, Choi said.
Financial services, retail and consumption, technology, media and telecommunications are the major sectors expected to issue IPOs in 2015.
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