Hong Kong stock market seeks pacts with Middle East bourses amid IPO boom

HKEX is in talks with Saudi Arabia's Tadawul to allow the cross-listing of exchange-traded funds, chairwoman Laura Cha says

The Hong Kong Stock Exchange currently has 110 initial public offerings in the pipeline. EPA

Hong Kong's stock market is seeking to collaborate with stock exchanges in the Middle East amid an initial public offering boom in the energy-rich region.

Hong Kong Exchanges and Clearing has access to Asian investments and bourses in the region could stand to benefit from Chinese funds, HKEX chairwoman Laura Cha told The National on the sidelines of the Future Investment Initiative in Riyadh.

“Traditionally, both for the Middle East countries and in China, the destination [has been] the US and Europe,” Ms Cha said.

Investors are now “looking beyond” those geographies due to geopolitical reasons and diversification, she said.

In February, HKEX signed an initial agreement with Saudi Arabia's Tadawul stock exchange to explore co-operation in the FinTech and environmental, social and governance (ESG) sectors, cross listings and several other areas of interest.

Saudi companies listed on the kingdom’s exchange can apply for a secondary listing on the Hong Kong exchange, Ms Cha said.

HKEX is making “good progress” on talks to allow exchange-traded funds to list on each other's bourses, she said.

The Israel-Gaza war, which has caused a major humanitarian crisis, has not affected HKEX’s discussions with exchange operators in the Middle East, Ms Cha said.

“The impact on our part of the market is not big. It has not affected our conversations with our counterparts in this part of the world,” she said.

HKEX, the world’s seventh-largest stock exchange, had a market capitalisation of $4.1 trillion at the end of September, up 4 per cent from the same period last year.

The bourse, which has a “couple” of big listings coming in the next two months, currently has 110 IPOs in the pipeline, Ms Cha said.

“They are waiting for market sentiment to turn. There are some companies that cannot wait [and] they will just cut down the size of their offerings,” she said.

Globally, in the first nine months, 968 IPOs raised $101.2 billion, a 5 per cent and 32 per cent decrease year on year, respectively, according to consultancy EY.

In the Asia-Pacific region, IPO volume and proceeds were down 8 per cent and 41 per cent, respectively, even though the region accounts for about 60 per cent of global market share, EY said in its latest market report.

Meanwhile, in the Europe, Middle East, India and Africa region, 286 IPOs raised $21.9 billion in the third quarter, marking an increase of 2 per cent in volume but a 44 per cent reduction in proceeds.

A distinct trend in the region is the growing interest in IPOs in the energy sector, along with ESG-related equity stories, it said.

In the Mena region, the growth in listings is being driven by Saudi Arabia and the UAE, the top regional economies, EY said in an earlier report.

While higher energy prices have led to several high-profile IPOs in the Middle East, listing activity has slowed down in other markets due to high interest rates, Ms Cha said.

“The rate of fundraise on the IPO market has dropped 30 per cent globally,” she said. “Hong Kong is no exception.”

Hong Kong, once the financial centre of choice for Asian businessmen, lost its crown to Singapore after mass pro-democracy protests in 2019 and strict Covid-19 lockdowns that lasted for three years.

The city benefits from its proximity to China, the world’s second-largest economy.

However, China’s post-pandemic economic revival lost stream in the second quarter amid a property slump and weak consumer spending.

“There was a lot of expectation that [China’s] economy will revive very quickly. It has, but not as quickly as people expected,” Ms Cha said.

China's economy grew by a faster-than-expected 4.9 per cent year on year in the third quarter as the government introduced stimulus measures to revive growth.

Ms Cha said geopolitical tension between the US and China was a slowing factor as well, but added that there was a “little bit of easing” lately, with America sending several high-level officials to Beijing for talks.

“We are cautiously optimistic, perhaps next year will be better … [but] there are a lot of uncertain factors globally economic wise.”