A-share market posted strong performance and HKEX hit a record high by proceeds

• In 1H2021, A-share market saw IPO surge by deal number and proceeds and remained robust while stocks posted mixed performance. Under the registration-based system, IPO review process remained stringent.
• In 1H2021, HKEX saw a decline in deal number while proceeds hit a decade high due to the recent reform of IPO system in Hong Kong; funds raised by China concepts stocks ranked the top two through secondary listings.

EY today released the Mainland China and Hong Kong IPO report, which concluded 1H2021 IPO activities in the world and Greater China and highlighted the outlook in 2H2021. As the impact of the pandemic was mitigated, global IPOs rebounded in1H2021, a total of 1,020 companies were listed and funds raised amounted to US$210.6b, up 138% and 199% by volume and proceeds respectively compared with the same period last year. China remained one of the leading IPO markets in the world, where IPOs to grow, accounting for 29% and 29% of the world’s total by deal number and proceeds respectively. It is estimated that the Shanghai Stock Exchange (SSE) ranked the second among global bourses in terms of IPO deals and Nasdaq ranked top by deal volume with 144 IPO deals due to the maintaining momentum of the listing of Chinese companies in the US. Kuaishou Technology became the world’s largest IPO in terms of funds raised, China Three Gorges Renewables and JD Logistics were ranked among the world’s top five largest IPOs.

Terence Ho, EY Greater China IPO Leader, said, “As the pandemic was contained and consumption rebounded, IPO activities in mainland China and Hong Kong returned to normal in Q2 2021. Driven by the implementation of new Securities Law and the registration-based IPO system on ChiNext, all boards of the A-share market posted growth by deal number and funds raised compared with the previous year. Also, a slew of high-profile deals from technology companies injected vitality into the Hong Kong market. With the deepening of institutional reform and ongoing measures enabling the capital market to offer more support on the real economy, we expect to see further robust IPO activities in 2H2021.”

A-share market saw continued growth in terms of funds raised while IPO deals doubled

It is estimated that 247 companies were listed on the A-share market in 1H2021, with a YOY increase by 109%; and the funds raised amounted to RMB211.8b, with a YOY increase by 52%. In 1H2021, small and medium-sized IPOs saw significant growth compared with the same period last year, as such, the average funds raised dropping to RMB858m, the lowest level in the last four years.

With the accelerated post-COVID recovery and implementation of the registration-based system, the A-share market ushered in a new era. In 1H2021, the deal number and proceeds under the registration-based system exceeded those under the approval system, representing 70% and 59% of total number of IPOs and funds raised respectively. ChiNext and STAR board topped and seconded in deal number, while in terms of proceeds, the Shanghai Main Board ranked top, representing 35% of the total funds raised.

Jane Yang, EY¹ Greater China Government & Public Service Market Segment Leader, said, “Multi-pronged measures are taken on the A-share market to define the positioning of each board and improve the quality of listed companies. In general, different companies can have their own choices based on their specific circumstances, meanwhile, differentiated development and moderate competition may help the capital market usher in a new journey toward a multi-layer system.”

In 1H2021, the total funds raised by top 10 IPOs amounted to RMB58.9b, representing 28% of total proceeds. Six out of top 10 IPOs were conducted under the registration-based system with total proceeds of RMB 27.1b, representing 46% of the total funds raised by top 10 IPOs. Under the registration-based system, exchanges are required to perform review duties with due diligence while the China Securities Regulatory Commission (CSRC) provides the exchanges with oversight for review quality, IPO requirements and information disclosure. As such, IPO review remains stringent.

In terms of industries, industrials led other sectors by number of deals and proceeds, followed by TMT. Same as last year, IPOs from financials remained subdued. In 1H2021, financials dropped out of top five by both number of deals and proceeds as only four companies were listed.

In terms of geographical areas, the top five regions by number of deals were Guangdong, Zhejiang, Jiangsu, Shanghai and Shandong, collectively accounting for 69% of total IPO deals. The top five regions by proceeds were Guangdong, Beijing, Zhejiang, Shanghai and Jiangsu, together accounting for 70% of total proceeds.

Companies from mainland China boosted IPOs on the Hong Kong Main Board and listing of Chinese companies in the US hit a record high

It is estimated that a total of 45 companies were listed on the Hong Kong market in 1H2021, with a YOY decrease by 24%, and the funds raised amounted to HK$210.8b, with a YOY increase by 127%. The return of Baidu, Bilibili, Ctrip, and Autohome in Hong Kong accounting for 38% of the total proceed of top 10 IPOs. Over 80% of IPOs came from companies in mainland China, with proceeds accounting for 97.5% of the total, representing an increase by both deal number of funds raised compared to prior year. Investors had higher enthusiasm for IPO subscription, with 439 times of average oversubscription on the Main Board, up 98% compared with the previous year. As of YTD 2021, 100% of IPOs on the Hong Kong Main Board were oversubscribed.

In terms of proceeds, with the return of China concepts stocks, TMT led other sectors by proceeds, representing 54% of the total funds raised. By deal number, biotech and health care sectors posted the strongest performance. The FinTech sector ranked the fourth by proceeds while no companies from traditional financial services went listed in Hong Kong in 1H2021.

King Li, EY¹ Assurance Partner, said, “Driven by the return of China concepts stocks and IPO system reform by the HKEX in recent years, funds raised from the IPOs in Hong Kong hit a new high in 1H2021. With the inclusion of STAR in the Shanghai-Hong Kong Stock Connect, adjustment to constituent stocks of the Hang Seng Composite Index and the further advancement of the simplified listing system for overseas issuers, the IPO market in Hong Kong is expected to become more attractive and competitive.”

In 1H2021, the listing of China concepts stocks did not stall despite the Foreign Company Accountability Act, and the number of Chinese companies listed in the US reached a record high. As of YTD 2021, 31 Chinese companies were listed on the US exchanges with funds raised amounting to US$8.82b, up 94% and 237% by deal number and proceeds respectively compared with the same period last year. The average first day return rate of China concepts stocks was 131%, the highest in recent years.

ChiNext and STAR will become leading forces driving IPO growth and the return of China concepts stocks are expected to see an upsurge

In 2H2021, mainland China’s IPO activities will be dependent on multiple factors. Globally, vaccination efforts have been accelerated and the recovery of the global economy beats expectation, however, runaway outbreaks in certain countries could aggregate worries among investors on the emerging markets. Domestically, economic growth has returned to normal; the first year of 14th Five-Year Plan is expected to see bullish IPO activities in relevant industries with favorable policies; the reform led by the registration-based IPO system will be deepened and the enhanced quality of listed companies will improve the A-share ecosystem. In 2H2021, the number of companies queuing for IPOs will stay high. As of 21 June 2021, there were 633 companies in the IPO queue list of the CSRC, among which 80% of companies were waiting to list on STAR and ChiNext. Most of these companies came from TMT, biotech and industrials sectors.

For the Hong Kong market, the return of China concepts stocks will generate greater impacts on total proceeds. IPOs from unicorns, large technology companies and biotech and health care businesses will maintain momentum.

As for opportunities faced by companies preparing for IPOs, Terence said, “In today's complex and changing environment, companies preparing for IPOs need to take into account various possibilities, improve resilience and flexibility, and demonstrate their capabilities to navigate the pandemic, supply chain crises and risks arising from worst-case scenarios. For cross-border listing, companies need to consider risks brought by changes in geopolitics and local policies and be well prepared to seize opportunities.”

¹ Ernst & Young Hua Ming LLP

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About data

The global IPO data in the press release are based on priced IPOs as of 21 June 2021 and expected IPOs by 23 June. The mainland China and Hong Kong data are based on IPOs as of 23 June 2021 and predicted IPOs as of 23 June. Sources of data include EY statistics, Wind, CSRC, Shenzhen Stock Exchange, Eastmoney, Hong Kong Stock Exchanges and Nasdaq.

This news release is issued by the EY China practice, a part of the Ernst & Young global network.