The U.S. market for initial public offerings was strong in 2006. Today, an up-and-coming IPO market has emerged in China. And in a move that could help drive IPOs on the SCI or Shenzhen Exchange, the Chinese government has altered its IPO listing policy. Under the new plan, only those Chinese companies that plan to raise over $1.0 billion or seek a dual listing on the SCI or Shenzhen Exchange will be allowed to pursue an IPO on the Hong Kong Hang Seng Index. Clearly, the intention of this unofficial policy is to pressure companies to list in China and open up markets to mainland Chinese investors, who may have been shut out in other IPOs.
The size of the SCI and Shenzhen Stock Exchange has surpassed the market value of the entire Hong Kong Exchanges and Clearing Limited. With a current market cap of about $1.78 trillion, the SCI and Shenzhen is greater than the $1.77 trillion assigned to those in Honk Kong.
Meanwhile in the U.S., fewer and fewer major Chinese companies are deciding to list on U.S. markets. What we are seeing in the U.S. markets are lower-quality Chinese companies. If you want a piece of the Fortune 100 in China, you will need to be able to trade in foreign markets. This means investors would need to buy Chinese stocks indirectly via mutual funds, exchange-traded funds, or directly via a broker that has access to Chinese-listed stocks.
The surge in the IPO market in China is so impressive that equity markets in mainland China could become more attractive for IPOs than the Hong Kong Hang Seng Exchange. IPOs at the Shanghai and Shenzhen Exchanges are expected to rise by over 50% this year to over $25.0 billion, according to PricewaterhouseCoopers. In Hong Kong, IPO listings are expected to fall over 50% from 2006.
But as we move forward, we could see more Chinese-listed stocks emerge on U.S. exchanges. In the past, many of the issues with Chinese listings in the U.S. had to do with the presence of stricter listing requirements. Now U.S. exchanges realize the loss in listing revenues for U.S. exchanges and are trying to attract Chinese companies. For instance, the New York Stock Exchange (NYSE), in trying to attract Chinese listings and take business away from the rival NASDAQ exchange, will lower its listing requirements; but on a case-by-case basis, according to the “South China Morning Post.”