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Capital Markets

How Hong Kong’s IPO market broke

The Hong Kong equity market’s heavy dependence on big listings from mainland China has been its fortune, but is now its bane. Diversification has been tried, but seems misdirected by not focusing on Asia. What will it take to reverse the decline?

The Hong Kong IPO market is broken and that won’t change any time soon. Even if it comes back to long-term health, which isn’t clear at the moment, it won’t be what it once was. It will never be the same."

Is this hysteria? Hyperbole? Or the understandable venting of fear and loathing by a seriously underworked Hong Kong equity capital markets banker – the source of the quote – in the run-up to what looks set to be a highly unsatisfying bonus season?

Whatever the answer, this has indeed been a strangely fallow year for a city usually viewed as a bellwether for the state of Asia’s primary capital markets. Before the financial crisis, Hong Kong regularly topped global initial public offering rankings. Even as recently as 2011, the city processed more initial stock sales, in dollar terms, than any other jurisdiction apart from the US and the People’s Republic of China.

There were even encouraging signs that Hong Kong’s markets were growing up and diversifying, weaning themselves off an unhealthy addiction to outsized stock sales by Chinese state-owned enterprises (SOEs). A brace of 2010 IPOs, from Russian aluminium producer Rusal and French cosmetics firm L’Occitane, appeared to signal a shift in identity and strategy.

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