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backCHINAtalk April, 2017

China IPO markets take global lead in Q1, Hong Kong sees sector and geographical diversification, KPMG analysis finds

China's A-share IPO market made a strong start to the year with Shanghai and Shenzhen securing the top positions in terms of proceeds raised in the first quarter. While Hong Kong saw a slowdown in IPO proceeds, a trend of sector and geographical diversification is emerging, according to KPMG analysis.

The performance of the A-share IPO market was strong in the first quarter of 2017. A total of 134 IPOs worth a combined RMB70 billion were recorded " the highest Q1 figures since 2014. Within that total, the Shanghai Stock Exchange recorded 65 IPOs with a combined RMB42 billion raised, up from 9 new listings and RMB5.1 billion raised over the same period of time last year. The Shenzhen Stock Exchange, on the other hand, saw IPO volumes hit RMB28 billion from 69 IPOs, both of which were four times higher than 2016 Q1. Shanghai and Shenzhen were ranked second and third globally in terms of total IPO proceeds raised.

Charles Wan, Head of the Capital Markets Development Group, Northern China, KPMG China, says: "The Mainland China stock market grew steadily on the back of a stabilising economy and improved market sentiment, providing a favourable environment for new listings. Also, the supply side and state-owned enterprises reform, together with the debt-to-equity swap programmes and other deleveraging policies provide additional support for the IPO market."

The strong performance of the A-share IPO markets can be attributed to an accelerated approval process, experienced since late 2016. This has helped reduce the number of A-share IPO applications from 681 in end of December 2016 to 600 in end of March 2017. A shorter waiting list has helped reinvigorate interest for companies to list their shares. In the first quarter, 101 companies currently trading on the National Equities Exchange and Quotations (NEEQ) have filed for pre-IPO tutoring, which was a 60 percent increase from the previous quarter.

KPMG expects the strong momentum to continue for the rest of the year on the back of a stabilising economy in China and favourable policies.

In Hong Kong, the IPO market was active in terms of the number of new listings, particularly in respect of GEM listings. Some 39 companies (20 on the main board and 19 on the Growth Enterprise Market) went public in the first three months of 2017, increased from 13 listings on main board and 6 on the GEM same time last year. However, IPO proceeds recorded a year-on-year decline of 56 percent to HKD13.3 billion due to the absence of sizeable deals. The average deal size for main board listings was HKD600 million- the lowest Q1 figures since 2010.

Nevertheless, positive trends are emerging for the Hong Kong IPO market.

Maggie Lee, Head of the Capital Markets Development Group, Hong Kong, KPMG China, says: "We are seeing a diversification in terms of geography and the sectors of newly listed companies. Companies from ASEAN countries eyeing opportunities in China are increasingly interested to list in Hong Kong. While companies from non-financial services sectors, including education, technology healthcare and life sciences are also playing a more important role."

In the first quarter, two overseas companies listed in Hong Kong, while more than 10 overseas companies are in active application status. KPMG believes the continuing diversification of Hong Kong's IPO market could enhance the attractiveness and competitiveness of the city's capital markets.

Looking ahead, KPMG expects Hong Kong's IPO market to remain steady with a year-end forecast of 120 IPOs worth a combined HKD200 billion. The eventual outcome will largely depend on various factors including the destination of several sizeable IPOs and the potential impact of further US interest rate hikes.

Source: KPMG China - GAI

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