Chinese enterprises are looking favourably at the Australian Securities Exchange (ASX) which has seen businesses such as the China Dairy Corporation, Traditional Therapy Clinics and Dongfang Modern Agriculture conduct their initial public offerings (IPOs) on the Sydney-based bourse in recent times.
As at July 2017, ASX has reported total market capitalisation of $7.27 trillion, making it the ninth largest exchange in the world. By free float market cap, the exchange is ranked third in Asia.
From 2014 to 2016, IPO capital raised on the ASX amounted to $28.7 billion, with 104 listings in 2014, 126 in 2015 and 129 last year.
The appeal of Australia’s capital markets can be largely attributed to the country’s robust regulatory environment, which has recorded more than 25 years of uninterrupted growth, although not without some problems of its own.
In comparison, the Chinese market suffers from high price fluctuations and market volatility, which came to the fore during the stock market turbulence of 2015, and more bubbles are predicted in 2017.
Chinese consumer goods & the ASX opportunity
Tianmei Beverage Group, a Chinese consumer water products firm, pursued an IPO on the ASX earlier this year. This has seen the company continue to “trade profitably and in line with expectations,” according to its chairman Tony Sherlock.
While recent years have seen Chinese enterprises seek to list on the Nasdaq and NYSE, a study by the Macquarie Graduate School of Management (MGSM) analysed IPOs of companies large enough for the S&P/ASX 200 but too small for S&P 500. It found significant underpricing in NYSE and Nasdaq markets compared to the ASX.
Sherlock of Tianmei Beverage Group told DEALSTREETASIA what makes the Australian securities market attractive to firms such as his is a “well-regulated market, with good transparency and participation of both large and small investors.”
“As Tianmei trades in Australia-sourced fast moving consumer goods, it was natural to seek capital in the country and to engage with Australian investors who would recognise the opportunity for local goods to be sold in the Chinese market,” he added.
The tech perspective
The ASX has a growing technology sector, with the average market capitalisation of technology stocks coming in at $207 million and a median market cap of $40 million. Over the last three years, the exchange has seen more than 60 technology IPOs.
Technology, media & telecommunications (TMT) listings dominated 2016 in terms of volume; the vertical saw 26 listings, which raised $778 million in capital, representing 10 per cent of total market issuance. The sector provided attractive returns to investors, with a weighted average performance since listing of 34.9 per cent.
Calvin Cheng, the chairman of ASX-listed educational technology firm ReTech, which recently completed its IPO on the ASX, told DEALSTREETASIA: “We are a Singapore/Hong Kong company with our senior management in Singapore and headquarters in Hong Kong. We are a Sino-Foreign JV with 30 per cent non-PRC shareholding (prior to IPO). This means we are not even allowed to list in China even if we wanted to.”
“There are, of course, ways around this – for example, putting some shares in trust with PRCs – but then there is a two-year waiting list for IPOs in Shanghai and Shenzhen,” he added.
For Australian investors, having Chinese firms listed on the ASX opens up their access to the Chinese market, given that there was an A$1.2 trillion ($905.2 billion) trading turnover in 2015 on the ASX according to an Australian Financial Markets Association (AFMA) report. In Asia, funds are set to grow to $6 trillion by 2030 – indicating a huge potential for investors.
Cheng of ReTech also noted that ASX possesses a good nucleus of technology corporations, something that he argues the Singapore Exchange (SGX) lacks. To Cheng, this translates to the benefit of having comparable firms to benchmark against and associated market liquidity for such enterprises.
“The ASX is seen as a mainboard listing, with the prestige that comes with it,” Cheng said, arguing that ReTech was too small for the HKSE main board, while the SGX suffered from poor valuations and low liquidity.
Singapore-based Dropsuite, led by chief executive Charif El-Ansari, which listed on the ASX via the reverse takeover (RTO) of Excalibur Mining last year, concurs.
“Liquidity is very good. With the growth in housing prices in Australia and likewise the capital markets, more people are investing in securities because housing is becoming unaffordable. This has resulted in a greater number of investors (some sophisticated, some not) in the Australian market which then stimulates the securities market.”