Big Guns But No Bright Lights

The city just isn't a magnet for sexy, new-economy stocks.
At Closing, May 25th
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Even if it doesn't get to host the IPO of Saudi oil giant Aramco, potentially the biggest float of all time, Hong Kong should still be able to maintain its billing as the world's No. 1 venue for share sales next year. But with limited tech deals on the horizon, and most in the listing queue rather staid Chinese state-owned enterprises, investors shouldn't expect too much excitement.

Hong Kong, it seems, just isn't a magnet for sexy, new-economy stocks. Part of it is because the city doesn't allow dual-class ownership structures, one reason why Alibaba Group Holding Ltd. plumped for New York. And for companies below a certain size, Hong Kong Exchanges & Clearing Ltd. requires evidence of at least a three-year track record, which some tech firms would find hard to fulfill. A thriving institutional investor base that understands the tech sector also helps New York, which continues to draw Chinese new-economy stars like ZTO Express (Cayman) Inc., a delivery service that gets much of its business from Alibaba.

In light of Meitu Inc.'s disappointing debut earlier this month, Hong Kong's standing isn't likely to change anytime soon. Zhongan Online P&C Insurance Co., which is backed by Alibaba's payments affiliate Ant Financial and Tencent Holdings Ltd., has decided to try its luck back home in China and Baidu Inc.'s video streaming service isn't a sure thing. There could be peer-to-peer lender Lufax, officially called Shanghai Lujiazui International Financial Asset Exchange Co., or even Ant Financial, but again, they aren't certain.

What Hong Kong can count on is Chinese state firms coming to the city to raise funds. Thanks to IPOs from the likes of Postal Savings Bank of China Co., the former British colony tops Shanghai and New York as the global leader in taking companies public this year.

Clear Winner

Hong Kong's stock exchange has been the world's top bourse for IPOs this year, with $25.1 billion in new listings

Source: Bloomberg

On the IPO cards for 2017 are another two big Chinese state deals: the $10 billion float of China Petroleum & Chemical Corp.'s retail business and a potential listing of China Tower Corp. But while they raise a lot of money, these government-backed company share sales are often packed with cornerstone investors, which means there isn't much liquidity once they hit the market.

State of Play

All Hong Kong's top 10 IPOs this year have Chinese government links

Source: Bloomberg

Getting a shot at Aramco could give Hong Kong a lot more buzz. Saudi Arabia is planning to list its oil behemoth at home, as well as in an offshore center such as New York, London or Hong Kong. If reports are correct, it's also considering Japan.

With its more buoyant IPO market, Hong Kong surely stands a better shot than its northern neighbor -- Japan has seen waves of international firms desert its exchanges over the past few decades. But many foreign listings in the city haven't performed well. Prada SpA and United Company Rusal Plc are trading below their issue price while Brazil's Vale SA pulled the plug on its secondary listing amid weak turnover. Valuations in Hong Kong tend to be low, too.

Valuation Variable

Hong Kong's Hang Seng Index trades at a lower price-earnings multiple than benchmarks in the U.S., London and Japan

Source: Bloomberg

With little to look forward to outside of a slew of Chinese state-owned enterprise IPOs, Hong Kong looks destined to attract the big guns but not the bright lights.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Nisha Gopalan in Hong Kong at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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