Next year will see record figures for Chinese initial public offerings due to the resumption of IPOs on the Chinese mainland and strong Hong Kong momentum, according to a Ernst & Young report released on Monday.
"We believe 2014 will be a record year in China and globally, with economic fundamentals and strong global liquidity fueling new listings," said Terence Ho, Ernst & Young's Greater China strategic growth markets leader.
The China Securities Regulatory Commission suspended IPOs in October 2012, as part of a crackdown on fraud and irregularities among advisers. The commission said at the end of November that China would resume IPOs in January 2014.
Hong Kong ranked second globally by IPO capital raised in 2013, up 80 per cent from 2012, and the strong performance will positively influence that in the first quarter of 2014, the report said.
"Small and medium-sized enterprises will be the main driving force of Chinese mainland IPOs next year," said Ho. "IPO funds raised in the Chinese A-share market in 2014 can be as much as 200 billion yuan (S$40 billion)."
The report said that more than 100 IPOs will be launched in Hong Kong in 2014, raising about HK$180 billion ($23.2 billion).
Ho added that the imminent re-opening of IPOs on the Chinese mainland exchanges in the first quarter of 2014 will bring a pipeline of more than 700 companies in the queue for approval, which will act as a catalyst for further activity across the region.
Of the companies in the queue, many are planning to get listed on the ChiNext board, which started trading on October 2009, and is home to high-tech companies and those with high growth potential.
Eighty-three Chinese companies have already completed the IPO examination process and received approval from the CSRC. About 50 are expected to have finished all the IPO procedures and to be listed before the end of January 2014.
The largest companies in the first batch of IPOs will likely be Shaanxi Coal Industry Co Ltd and China Post Group. The two plan to raise 27.2 billion yuan, accounting for about 62 per cent of the first batch, the report said.
It added that the first batch of IPOs will be actively pursued by investors because the companies have gone through a strict financial verification process and the IPO hiatus has been long in China.
At the end of November, China launched a reform plan for new listings to boost the country's stock market over the long term.
The Ernst & Young report said the reform plan will likely reduce the examination and approval processes, so the number of IPOs on the Chinese mainland market will increase in 2014.
Companies in the industrial, TMT and retail and consumer sectors are the most likely to be approved by the CSRC, and those three sectors will also be the most popular in the Chinese A-share IPO market in 2014, said the report.
Many IPOs will also be seen in the environmental protection, services, Internet finance and mobile Internet sectors next year, it added.
"Despite the freeze in IPOs on the Chinese mainland, with listings suspended since late 2012, Greater China has seen high levels of activity in 2013, with Hong Kong seeing an increase in the number of deals and total funds raised, a trend that is set to continue into 2014," said Hoffman Cheong, an assurance leader at Ernst & Young China North Region.
Cheong said that total IPO funds raised in Hong Kong this year are expected to reach HK$162 billion, up 80 per cent from 2012, with the mild recovery of the global economy and a stabilization of the Chinese economy behind the increase.
Positive factors for Hong Kong's new listings in 2014 will include the steady global economy and Chinese reforms.
Companies in the financial services, property, retail and consumer, and healthcare sectors will be popular in the Hong Kong IPO market in 2014.
Arthur Kwong, head of Asia Pacific equities at BNP Paribas SA, said the market will focus on companies benefiting from reform policies, such as the relaxation of the one-child policy.
In the financial sector, as the upcoming interest rate liberalization is expected to erode the profit margins of banks and the shadow of local government debt is still hovering, investors should be careful with Chinese bank stocks, said Kwong. However, as the penetration rate of life insurance is comparatively low in China and the urbanization drive and financial reform will stimulate growth, Chinese insurers are recommended in 2014.
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