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Asia-Pacific | Economy

Could Hong Kong Benefit from Relistings of US-listed Chinese Firms?

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  • More than 350 firms of Chinese origin have listed in the US since 1993, raising US$88.5bn in their IPOs. US and other overseas exchanges historically offered multiple advantages such as avoiding the IPO quota approval system in China; large, deep, liquid markets; and reputational benefits. Nasdaq-listed Chinese firms as a group have outperformed the Nasdaq Composite Index for most of the years since their listing. However by valuation, Chinese firms’ price-earnings ratio in the US tends to be lower than their peers on Shanghai and Shenzhen markets, and sizably lower than Hong Kong peers.

 

  • In recent years, however, there has been an acceleration in US delistings and fewer Chinese firms have listed in the US after 2015. Issues include language/cultural differences; investor unfamiliarity with China firms; litigation risks; and perceived benefits of Asia relisting. This trend could become a relisting wave as US-China trade and political tensions have escalated, and as China’s move last month to enact a National Security Law (NSL) in Hong Kong triggered the US congress to consider bills that, if passed, could have the likely effect of pushing most US-listed China firms to delist from US.

 

  • Rationales for China companies to return their listing domicile from overseas to Hong Kong or mainland China exchanges include expectations of higher valuations, easier access to financing and improved liquidity, reduction in regulatory/political risks, and a more flexible and welcoming market regime after rules enhancements in recent years.

 

  • Citi analysts believe the Hong Kong market may stand to gain the most from Chinese companies delisting from US exchanges, despite the NSL risks. The threat of financial decoupling between the US and China could also push China to advance its policy agenda on RMB internationalization and reserves diversification. Overall, Citi analysts see benefits for Hong Kong in terms of fund flows and asset reallocations.

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