Chinese autonomous driving company WeRide was listed on the Nasdaq on Friday, October 25, 2024.
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BEIJING – The number of Chinese IPOs in the U.S. and Hong Kong is expected to increase next year, analysts said, as some high-profile listings outside the mainland this year boost investor optimism about profitable exits.
Chinese autonomous driving company WeRide listed on the Nasdaq Friday with a price increase of almost 6.8%. Earlier this month, Chinese robotaxi operator Pony.ai also filed paperwork to list on the Nasdaq. Both companies have long been aiming to go public.
Few major China-based companies have listed in New York since Didi’s IPO in summer 2021. US and Chinese regulators have increased scrutiny of such listings. The Chinese taxi company was forced to temporarily suspend new user registrations and was delisted within a year.
US and Chinese authorities have since clarified the process for a China-based company to go public in New York. But geopolitical developments and market changes have significantly reduced the number of U.S. IPOs of Chinese companies.
“After a few slow years, we generally expect the IPO market to rebound in 2025, supported by rate cuts and (to some extent) the outcome of the US presidential election,” said Marcia Ellis, global co-chair from Hong Kong. of the private equity practice, Morrison Foerster said in an email.
“While the market views US-China regulatory issues as problematic, many of the issues driving this perception have been resolved,” she said.
“Chinese companies are becoming increasingly interested in listing in Hong Kong or New York, due to the difficulties in obtaining a stock exchange listing in mainland China and pressure from shareholders for a quick exit.”
This year, no fewer than 42 companies went public on the Hong Kong Stock Exchange there were 96 IPO filings pending or pending as of September 30, according to the grant’s website.
Last week, Horizon robotics – a Chinese developer of artificial intelligence and car chips – and a state-owned bottled water company CR drink went public in Hong Kong.
The two were the biggest IPOs of the year, excluding listings from companies that also trade on the mainland, according to Renaissance Capital, which tracks global IPOs. The company noted that Chinese delivery giant SF Express plans an initial public offering in Hong Kong next month, while Chinese automaker Chery plans an initial public offering next year.
Still, the overall pace of IPOs in Hong Kong this year is slightly slower than expected, George Chan, global IPO leader at EY, told CNBC in an interview earlier this month.
He said the fourth quarter is generally not a good time for stock market listings and expects most companies will wait until at least February. In his conversations with early-stage investors, “they are very optimistic about next year” and preparing companies for initial public offerings, Chan said.
The planned listings are generally life sciences, technology or consumer companies, he said.
Hong Kong and then New York
Investor sentiment towards Chinese equities has improved in recent weeks due to high-level stimulus announcements. Lower interest rates also make shares more attractive than bonds. The Hang Seng Index is up more than 20% so far this year, after four straight years of declines.
Many Chinese companies listing in Hong Kong also see it as a way to test investor appetite for an IPO in another country, said Reuben Lai, vice president of Private Capital, Greater China at Preqin.
“Geopolitical tensions are making Hong Kong a market of choice,” Ellis said, “but the depth and breadth of U.S. capital markets are still causing many companies to seriously consider New York, especially those focused on high technology and not yet profitable , who sometimes believe their stock stories will be better received by U.S. investors.”
Just over half of the IPOs on US stock exchanges since 2023 have come from foreign-based companies, a 20-year high according to EY.
Geely-backed Chinese electric car company Zeekr and in Chinese hands Amer Sports both listed in the US earlier this year, according to EY’s list of major cross-border IPOs.
Chinese electric truck maker Windrose said it plans to enter the US in the first half of 2025, with a dual listing in Europe later that year. The company, which aims delivering 10,000 trucks by 2027announced it on Sunday moved its global headquarters to Belgium.
A recovery in Chinese IPOs in the US and Hong Kong could help funds capitalize on their investments in early-stage startups. The lack of IPOs had reduced the incentive for funds to back startups.
Now investors are looking to China again after recently deploying capital in India and the Middle East, says Preqin’s Lai. “I definitely see greater potential in China from now on, whether it’s money coming back, the valuation of the companies, the exit environment [or] performance of the funds.”
While the upturn in investor activity is still far from the levels of the past two years, the nascent recovery includes some investments in consumer products such as milk tea and supermarkets, Lai said.