Stock exchange efforts to attract the new technology giants will continue to intensify
September 20, 2018
In the increasing efforts by leading financial centres to attract the “unicorns” and the new economy stars, competition between New York, China and Hong Kong exchanges in particular will intensify. Traditionally, the US market has been a more attractive environment for technology investors, with better valuations and a more knowledgeable investor base, attracting a substantial share of Chinese mega tech IPOs, including record-breaking Alibaba’s $25bn IPO in 2014.
Now, the recent market and regulatory developments in China and Hong Kong are expected to help attract more IPOs to these markets and lure the tech giants away from the US exchanges:
- A major catalyst is the Hong Kong stock exchange’s recent overhaul of IPO rules, which now allow dual-class shares in listing companies, giving certain shareholders, such as company founders, disproportionate voting power. Already, a number of companies, previously planning a US listing, have switched to Hong Kong. An added benefit of listing in Hong Kong is ‘Stock Connect’, a collaboration between mainland China and Hong Kong exchanges that lets investors trade securities in each other’s markets.
- Additionally, changes to the listing rules to relax the three-year profitability requirements for new issuers opened the way for more emerging and innovative companies to list in Hong Kong. This has attracted the attention of many “new economy” companies, including biotech companies, which might previously have sought US listings.
- China is now allowing global tech companies easier access to domestic investors. Authorities have endorsed the Chinese depositary receipts (CDRs) scheme, which will allow Chinese investors to hold a form of shares in firms listed abroad. However, details of this scheme including timetable are yet to be confirmed and may only be available to a limited number of companies, and other companies will still go through a long waiting times to get approvals for IPOs, as compared to a speedier process in the US or Hong Kong.
We can therefore anticipate the China stock exchanges competing fiercely with the US exchanges in the global rankings, as the Technology sector continues to lead global IPO issuances and drive stock market performance.