HONG KONG--(BUSINESS WIRE)--New research from the Macquarie Graduate School of Management (MGSM) has found Initial Public Offerings made in Hong Kong could raise more capital than they could in the U.S., despite the Hong Kong market’s smaller size and depth.
Author Professor Alex Frino, Dean, MGSM, said the research had come at a particularly pertinent time.
“Hong Kong is a global leader in the IPO space, with very large Chinese company listings pushing the exchange into number one spot globally this year,” he said. “Schemes like the Stock Connect make Hong Kong a compelling proposition for companies wanting that proximity to China.”
The research examined a sample of securities and compared their price on listing, which is known as underpricing. Underpricing is the discount on the issue price relative to fair value required to induce investors to fully subscribe for shares in an IPO. Professor Frino said the research team found significant discrepancies between Hong Kong and the U.S.
“Even after controlling for differences among a large number of variables known to influence underpricing, including deal size and issue price setting mechanism, we found that underpricing is on average 6-14% lower in Hong Kong. That means company listing prices are 6-14% higher than they would be in the U.S.”
“It’s likely that these findings reflect the Hong Kong investor profile,” said Professor Frino. “There’s high demand for quality Chinese stocks as investors look to get exposure to those parts of the Chinese economy still promising growth. We think that this competition means IPOs need to offer smaller discounts to ensure subscription than they do elsewhere in the world.”
Professor Frino said the study highlighted the importance of Hong Kong as a global business hub. “There is no doubt Hong Kong is the Asian hub in terms of doing business and in terms of finance,” he said. “Despite the softening of Chinese growth the proximity to what is still the world’s largest market makes Hong Kong the most attractive listing venue in the world right now for many companies. However, it will be interesting to see how this develops as China develops its mainland listing rules.”
