International investors searching for higher returns from the equity markets are eyeing IPOs of Chinese tech unicorns, shrugging off US-China tensions and betting that the country's economy would pick up further momentum following the coronavirus outbreak.
Equity capital market deal volumes have jumped 60 per cent in the first nine months of this year, a multi-year high, according to Refinitiv. Amid this backdrop, Chinese technology companies will continue to attract capital as central banks' accommodative monetary stimulus has kept liquidity very high globally, said Tucker Highfield, co-head of Asia-Pacific equity capital markets at Bank of America, who is based in Hong Kong.
"In an environment where interest rates are near or below zero, growth is the only [attribute] in the investing landscape that matters, which points to equity," said Highfield.
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With the US Federal Reserve hinting that it intends to keep its near-zero interest rate unchanged until at least 2023, some market observers have pointed that investors are shunning other assets such as bonds, as the likelihood of rising inflation and low yield dampen their attractiveness, thus highlighting equity's relative appeal.
Xpeng successfully raised US$1.7 billion from its New York IPO in August. (Above) XPeng CEO He Xiaopeng unveils its Kiwigogo flying car at the Auto China exhibition last month. Photo: Simon Song alt=Xpeng successfully raised US$1.7 billion from its New York IPO in August. (Above) XPeng CEO He Xiaopeng unveils its Kiwigogo flying car at the Auto China exhibition last month. Photo: Simon Song
China's rebound from the pandemic, which contrasts that of the global economy, is giving investors additional confidence. The IMF said last week that it expects China will be the only economy to report positive gross domestic product (GDP) growth this year, growing at 1.9 per cent compared to the global economy is expected to contract by 4.4 per cent.
This might help explain the improved investor sentiment towards some of China's up-and-coming technology unicorns, such as those in the electric vehicle (EV) sector which were able to raise sizeable funds from the equity markets this year.
NIO, which listed in New York in 2019, raised about US$1.7 billion via a follow-on offering in August, riding on the Shanghai-based start-up's blowout stock performance this year, which has surged over five times so far this year.
Some analysts believe that with China's EV sector set to make further inroads and gain market share from traditional carmakers, they expect more follow-on share offerings, especially from listed EV makers.
"We are reaching an inflection point where the cost of an EV will be on par with traditional cars in the next two years," said Sundeep Gantori, equity analyst at UBS Global Wealth Management's chief investment office.
Chinese internet companies were also among the world's top five listings this year. The secondary listings of New York-listed NetEase and JD.com in Hong Kong helped them to raise a combined US$7.5 billion.
Chinese tech companies' move to list closer-to-home has come amid increasing threats from the Trump administration to delist mainland companies from US markets.
Ant Group, the operator and owner of Alipay, is in the process of launching a dual IPO on the Shanghai and Hong Kong stock exchanges. Photo: Reuters alt=Ant Group, the operator and owner of Alipay, is in the process of launching a dual IPO on the Shanghai and Hong Kong stock exchanges. Photo: Reuters
Some of the 500 unicorns globally could seek a listing in the next 18 months, said Gantori. These listings could come mainly from start-ups with a digital focus, such as those that offer mobile and cloud-based solutions and fintech companies, which account for 65 of the total, he said.
Among them is Ant Group, which is planning to raise an estimated US$30 billion in dual initial public offering on the Shanghai and Hong Kong stock exchanges. So far this year, Hong Kong is ranked behind Shanghai and Nasdaq in total IPO funds raised.
"The option of listing in China and/or Hong Kong is a positive development for tech companies and will attract more capital to the region and the sector," said Highfield.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.