How the Hong Kong Stock Exchange is on pace for a record year, and why the future may include SPACs

The amount of money deposited in Hong Kong’s banks jumped in the first nine months of this year — January through September — as investors targeted a series of hotly-anticipated initial public offerings in the city, a trend that is likely to continue despite what appeared to be a shrink in new listings for Q3.

As many as 73 companies raised $35.9 billion USD in the first nine months of 2021 from IPOs and secondary listings, a 25 percent jump from the same period last year, and Hong Kong's best nine months since records began in 1980.?

The yearly statistics remain positive despite the Hong Kong Exchanges and Clearing Ltd., or HKEX, hosting 27 new listings in the three months that ended September 30 (or, Q3), in which a total of approximately $9.5 billion USD was raised, a 40 percent year-on-year drop.

Listings in the third quarter included those of Tesla Inc. rivals Li Auto Inc. and XPeng Inc. But several other potential IPOs were put on hold, including those the music unit of Chinese gaming company NetEase Inc. and electric-vehicle maker NIO Inc.

Currently, more than 200 IPO applications are in the pipeline for the HKEX as of the end of September, one of the highest numbers on record.

"Hong Kong has been the world’s largest IPO market in seven of the last 12 years," says Jimmie Jeremejev, managing director at LehmanBush. "More recently, the attention has shifted to US-listed Chinese companies seeking secondary listings in Hong Kong to hedge against the risks of being delisted from U.S. stock exchanges under new auditing requirements."

Seven of Hong Kong’s 10 largest IPOs were U.S.-listed Chinese tech companies seeking second or dual primary listings in the city. These included search engine giant Baidu and video-sharing platform Bilibili that raised a combined $6 billion USD in the first quarter of this year.

Xpeng, the electric-car maker based in southern China’s Guangzhou, raised $2.06 billion USD in July, before its Beijing-based rival Li Auto raised $1.73 billion USD a month later. Both carmakers are dual listed in Hong Kong and the U.S.

One area that could also boost the HKEX in the near term is the listing of special purpose acquisition companies, which will place the bourse in a better position to compete against Singapore, where the Singapore Exchange recently approved the listing of SPACs to better hedge against drop-offs in IPOs.?

The Hong Kong government’s Financial Services Development Council recently backed a proposal by HKEX to introduce SPAC listings.?

"HKEX's growth also partly hinges on China's plans on how to regulate overseas IPOs," says Bobby Afshar, managing director at LehmanBush. "China’s cyber-security watchdog is now requiring companies seeking to list abroad to get pre-approval to ensure they comply with local laws. We expect to know before the end of this year on whether HKEX would be exempt or partially exempt from these rules."