Listings head east to China as US IPO market languishes amid inflation and volatility

Stock listings in Asia have raised $104bn this year and account for a record 68% of global volume

The Shanghai Stock Exchange building. Chinese IPOs have continued to come thick and fast. Reuters

The centre of global initial public offering (IPO) activity has shifted east to China as waves of volatility and slumping stock markets sends many sizeable listings in the US into limbo.

Stock listings in Asia have raised $104 billion this year, accounting for a record 68 per cent of global volume, data compiled by Bloomberg shows.

By contrast, US IPOs represent 14 per cent of the $153bn fetched globally, the lowest level for what has traditionally been the busiest listings market in the world.

The strong Asian showing is mostly down to Chinese IPOs, which have come thick and fast even as rising interest rates and the prospect of a recession put a lid on first-time share sales in most major markets.

Of the 10 largest listings globally this year, six were from Chinese companies either on mainland exchanges — the so-called A-share market — or in Hong Kong, the data shows.

“In 2022, as the world deals with inflation and global tensions, the IPO epicentre in terms of volume has shifted east,” said James Wang, co-head of ECM at Goldman Sachs Group, in Asia ex-Japan.

“The continuity of such appears sustainable for the time being given some sizeable Hong Kong IPOs are lined up to potentially test markets before year end.”

In the US, which accounted for more than half of last year’s record $657bn of IPO proceeds, the market has come to a sudden halt as inflation fears and heightened volatility keep valuations depressed and cause investors to steer clear of the high-growth companies that typically dominate IPO activity.

The unwelcoming market conditions have forced highly anticipated listings such as Mobileye and Chobani to be pushed back or scrapped altogether.

Until last week, there had been only one $1bn-plus offering in New York this year, that of private equity firm TPG. In Asia, there have been 12, while the Middle East has had four.

“We’re getting into the kind of market where people are just saying there’s capitulation,” said David Ethridge, US IPO services leader at PricewaterhouseCoopers.

“It’s happening right now. They’re busy people and maybe they don’t want to fight at the board level about getting the process started when we’re not hearing anything good about IPOs.”

The delayed US deals are compounding a void that was already being created by an exodus of IPO candidates based in China.

Only $636 million has been raised in New York by companies from China or Hong Kong, compared with almost $16bn a year ago.

The slowdown in US IPOs by Chinese companies follows a run of delistings as Beijing and Washington worked to hash out an agreement on letting US regulators inspect Chinese companies’ audits. If they failed they risked being kicked off American exchanges.

That prospect of forced delisting prompted US-traded Chinese companies to raise tens of billions of dollars through so-called homecoming share sales in either Hong Kong or mainland exchanges in recent years. Higher valuations back home were another draw for them.

“The A-share market is somehow immune to the global volatility,” said Zili Guo, co-head of Asia equity capital markets at UBS Group.

“It’s largely a domestic market and mostly driven by domestic money. The market condition in the A-share market is relatively stable and, compared to the volatility we have seen in global markets, it can still print deals consistently.”

This year, some of Asia’s biggest listings were by companies that have been booted out of New York. China Mobile and CNOOC fetched a combined $14bn between them through their Shanghai share sales.

There are signs of activity in Hong Kong, which had a slow first half. Chinese battery maker CALB is gauging demand for a potential $2bn IPO, while electric-vehicle maker Zhejiang Leapmotor Technologies is looking to start taking investor orders for a $1bn offering next week, Bloomberg News reported.

Even with a preliminary agreement on the auditing issue in the US, there are doubts that the flow of Chinese companies to New York — they have raised $122bn since the start of the century — will return to previous levels given increasing alternatives.

“Chinese issuers now have more options when they want offshore funding,” said Mandy Zhu, head of China, global banking at UBS. “Apart from the traditional HK and US listings, they can do an A-share IPO first.”

Following that, the companies could tap European exchanges through a stock link between China and Europe, she said.

Europe is becoming a more appealing listing venue for Chinese companies than the US.

About $2.3bn has been raised by mainland companies in Europe this year through the newly expanded stock link between China and exchanges in Germany, Switzerland and the UK, helping prop up dire listing volumes on the continent.

There is a mammoth deal around the corner in Europe, which could double the region’s current IPO proceeds of $9.8bn in one fell swoop.

Porsche could kick off an offering as soon as next week that values the sports car maker at as much as €85bn ($85bn), Bloomberg News reported.