After a blockbuster 2020, the boom in initial public offerings (IPOs) of Chinese technology companies is poised to continue this year. China is expected to outperform regional peers in terms of listings to become the top choice for equity investors in Asia Pacific this year, said experts at Indosuez Wealth Management.
“All the top countries in Asia Pacific are expected to achieve positive and higher GDP growth this year… China is our top choice when it comes to investing in the region,” said Indosuez’s equity advisor Winnie Chiu during a virtual roundtable on Wednesday. Indosuez is the wealth management arm of French bank Crédit Agricole that managed 132.1 billion euro ($158.8 billion) as of December 31, 2019.
“China accounted for 17% of the global GDP in 2019. And 54% of China’s GDP is derived from the services segment, implying massive spending power and its long-term appealing consumer and high tech sectors,” said Chiu. “We also foresee positive changes in the Hong Kong stock market landscape, as more Chinese tech companies come for a listing in the city.”
Stock listings of Chinese firms topped global rankings in 2020, according to research firm EY, as COVID-induced demand for online solutions boosted the valuations of tech companies.
Chinese companies accounted for half of the top 10 listings, and also the biggest three listings in 2020. This includes Chinese chipmaker SMIC’s listing on the Nasdaq-style STAR Market in Shanghai, as well as e-commerce major JD.com’s secondary listing in Hong Kong. No Asia-Pacific firm outside of China managed to make the top 10 list.
Despite the abrupt suspension of Alibaba’s fintech spin-off Ant Group’s $37 billion dual-listing last November, stock exchanges in mainland China and Hong Kong still registered their best year in terms of total IPO proceeds in a decade.
A KPMG China report in December 2020 estimated the cumulative proceeds from IPOs in mainland China and Hong Kong at $118.7 billion in 2020, comprising 45.1% of IPO proceeds globally, with a 54% surge from one year earlier.
“Asia-Pacific equities had a strong rally in 2020. China’s A-shares, in particular, rose 27%, outriding other indices regionally,” said Chiu.
A-shares are stocks of mainland companies that trade on Shenzhen and Shanghai stock exchanges. H-shares, on the other hand, are stocks of mainland companies listed in Hong Kong.
Hong Kong to witness more IPOs
Year-to-date, however, the index momentum in H-shares has picked up strength and outperformed the A-shares index, Chiu noted, adding that the city’s bourse could gain further in 2021, as homecoming offerings of US-listed Chinese tech firms are expected to continue amid uncertainties in the US-China relationship and America’s tightening oversight on foreign issuers.
Among the US-listed companies looking to trade their shares in Hong Kong are search engine giant Baidu, which has reportedly moved towards a secondary listing to raise at least $3.5 billion, and online travel giant Trip.com Group that was said to be mulling a Hong Kong share sale of at least $1 billion. Video-sharing platform Bilibili was reportedly targeting over $2 billion, while car sales website Autohome could raise $1 billion.
Chinese tech companies listed in the US “have gathered a good number of followers,” said Chiu. “A lot of these tech companies were not available to mainland investors. But now with their listings in Hong Kong, [mainland] investors can invest through the Stock Connect. So I do see that that will actually change the Hong Kong stock market in a much more constructive way.”
As local governments continue to be vigilant in imposing stringent virus control and quarantine measures to contain a new wave of coronavirus cases, Indosuez expects Asia Pacific to see gradual improvements in exports, manufacturing, PMI (purchasing managers’ index), retail sales, and consumer confidence this year.
Consumer discretionary, internet, media/entertainment, and financials will be some of the sectors for equity investors to make safer bets.