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In the weeks leading up to Ant’s planned public offering, the Chinese fintech group controlled by billionaire and Alibaba founder Jack Ma, Hong Kong bankers radiated confidence. Here, the argument went, was undeniable proof that the city’s future as a financial center was secure.
After more than a year of social upheaval, the disruption of the coronavirus pandemic and a national security law that raised fundamental questions about the city’s legal system, they appeared to be right. Then, early last month, Beijing suddenly suspended the Hong Kong-Shanghai double IPO, days before the shares started trading, as China pushed ahead with regulations targeting online lenders and monopolistic practices in your technology sector.
However, after this last-minute tumult, few believe that the city’s status as a major financial center is in jeopardy, even as much of its financial sector continues to shift towards an even greater reliance on Hong Kong’s role as the main conduit between Chinese and global finance. .
“Hong Kong’s financial stature is greater than any deal, and far broader even than the equity markets,” says Jason Elder, a partner at Mayer Brown, the global law firm. He adds that issuance in both equities and debt capital markets has been resilient despite a year of unprecedented turmoil. “The city’s status as an international financial center remains strong,” he says.
Investors and traders admit that Ant’s delay had shocked the city’s financial sector and forced a shakeup of markets that had been using the planned price, and the vast funds flowing into Hong Kong before it, as a focal point.
“[Ant] it was really going to generate a lot of cash flow by the end of the year, ”says a local hedge fund manager. “Everything was aligned around this.”
The delay to the city’s main IPO of 2020 will make it more difficult to outperform rival exchanges in New York and retain its already challenging listing crown, thanks to tens of billions of dollars in company issues. Purpose Procurement, or Spacs, on Wall Street.
But for standard issue IPOs, Hong Kong still faces its American rivals. In terms of funds raised by non-Spac IPOs, Hong Kong’s nearly $ 39 billion of primary and secondary listings this year put it just behind the $ 41 billion raised from IPOs on the Nasdaq, the US leader. , according to data from Dealogic.
That puts it a surprising distance from beating last year’s record of $ 40 billion that was made possible by a nearly $ 13 billion sublist from Alibaba a year ago, which set the stage for more Chinese tech giants to raise. billions of dollars closer to home in 2020..
Alicia García Herrero, chief economist for Asia Pacific at Natixis, says it has been a “magnificent year” for the flow of transactions in the Hong Kong capital markets. But he added that the city was increasingly moving away from its position as a global financial center towards a role primarily as an offshore center for Chinese finance: “In Hong Kong, the concentration of mainland companies is enormous.”
That is confirmed by the Financial Times analysis of data from Hong Kong’s financial regulator, which shows that mainland Chinese companies in the city now employ more than 2,100 licensed investment bankers. This is just a few hundred lower than the number that works for Wall Street’s bulging support investment banks like Goldman Sachs and Morgan Stanley.
Meanwhile, rival Shanghai is gaining more ground as a destination for Chinese teams from international investment banks. Its technology-focused flagship market has had a banner year as Beijing has lobbied companies to take advantage of local markets in its attempt to move the country away from its dependence on US capital markets.
In fact, most of the listings in Shanghai this year have been on Star, founded in July 2019. While the pause in Ant’s IPO may deprive China’s major stock exchange of its crown jewel for a while, The agreement is more a sign of the times than a catalyst for change in its own right.
“We see Shanghai starting to move from being primarily a hub for domestic banks to being a place where international banks now see their feet on the ground as crucial if they are to win major roles in some of these onshore deals,” he says Alexander Owen, research manager for the investment banking intelligence group Coalition.
Owen says that foreign banks’ focus on capturing a larger share of the fee pool in Shanghai has intensified as China moved forward this year in an effort to make Star a “flagship destination” for Chinese tech stocks and “a direct competitor of Nasdaq. “
“We see an increasing involvement of international banks in some of these onshore deals going forward, reflecting the emerging demand from international investors to have a piece of this pie,” he says.
But while Star has drawn more business into the country, Hong Kong remains vitally important to China’s largest and most powerful tech groups, even as they face regulatory pressures at home.
Investors had to take a serious pause this month when Beijing announced new regulations curbing monopoly power in the sector. This sparked a selloff that wiped out nearly $ 290 billion in value from the Hong Kong stock market as shares in companies like Alibaba, Tencent and JD.com fell. However, after these losses, the Hang Seng Tech index that tracks these and other major tech groups listed in the city was still rising nearly 70% in 2020, reflecting the high concentration of the largest tech groups and tech groups. China’s fastest growing listed in Hong Kong.
Natixis’s Garcia Herrero says the city’s advantage over Shanghai would remain, thanks to capital controls that prevent the latter from achieving true global financial prominence. However, he adds that that does not guarantee that Hong Kong’s future will be as cosmopolitan as its past. “I don’t know what the future of Hong Kong will be, but I’m pretty sure it won’t be a global financial center. Hong Kong is now the financial center of China, which is different, ”he says.
