But a potential paradigm shift is brewing, with global funds gravitating towards Asian issuers that promise greater growth potentials.
The world’s largest initial public offering so far this year has landed in Hong Kong.
The stars look aligned for a new wave of flourishing stock sales in Asia, where economic recovery, listing reforms, technological innovation and currency appreciation are combining to drive an equity capital boom.
A structural shift
The structural case is clear. Stock markets of Asian countries appear significantly underdeveloped relative to the size of their economies, implying huge potential for growth.
For instance, the aggregate market capitalisation-to-GDP ratio is about 89% for China (including Hong Kong) and 116% for India – far below the 221% in the US and 136% in the UK.
With a “first in, first out” advantage, China is leading a global economic recovery from the Covid-19 crisis, as domestic consumption rebounds and exporters take advantage of supply disruptions in Western countries.
China pulled off a 2.3% GDP expansion last year, the only growth among major economies worldwide. Other Asian economies including Vietnam and Taiwan also bucked the global growth downturn to report 2020 expansion.
In an era of zero to negative interest rates, especially in the West, international funds could find few better places than emerging Asia for decent returns.
Growth in China, India and the ASEAN block will continue to outpace Western countries over the next few years, according to International Monetary Fund (IMF) estimates.
The IMF forecasts the Chinese economy will expand 8.1% this year, while India will likely achieve a 11.5% growth.
China’s market reforms
Keen to invigorate their capital markets, Asian policymakers have been busy rolling out reforms towards smoother listing and trading.
A new venue for technology start-ups, known as the STAR Board, opened in Shanghai with a bang in 2019, featuring fewer trading curbs and lower profit thresholds for issuers than China’s other onshore exchanges.
To encourage tech listings, regulators have also eased IPO approval rules for the ChiNext Board in Shenzhen.
Hong Kong has attracted a stream of biotech IPOs over the lpast three years, after the city’s exchange operator relaxed restrictions in 2018 to allow pre-profit and even pre-revenue issuers in the sector.
A regional push
Meanwhile, India is planning bold reforms that could spur a capital market boom over the next few years. In a bid to boost efficiency, the government aims to privatise state-owned giants from banks to transport operators, with an initial divestment target of $24bn.
Successful implementation of the programme would greatly enlarge India’s IPO pipeline and attract an influx of foreign capital. Similarly, Pakistan is considering privatising state-run companies across a wide range of sectors.