What do you think have been the main causes of Asian stock market volatility over the past six to nine months and do these causes differ from other regions where there has also been volatility and a lack of IPO interest?
Denise Jong: With globalisation, what happens in one financial market has an effect on another. When the Dow Jones closes down, it will likely mean that Hong Kong and China markets will open down on the previous day’s close. For example, periodic employment and other data from the U.S. results in speculation of the likelihood of the Federal Reserve rates going up and that impacts the sentiment here.
In China, however, there is an additional consideration. The number of IPOs permitted is actually strictly controlled for the Chinese exchanges. When the policy is to heavily restrict the number of IPOs, then the demand for the existing pool of shares that are already listed may go up.
Singapore and Hong Kong markets are not performing as well as last year; most of the investment bankers would tell you that the first half of 2016 has been the worst in quite some time. It is no coincidence that large U.S. investment banks have also announced significant cutbacks in Asia. Hong Kong is, by virtue of it being a larger market, better able to weather a storm when compared to the smaller capital market in Singapore. There are some local variations like Vietnam where, as an emerging market, it is driven more by local conditions for volatility.
IPO activity in 2016 has been low to date. When do you anticipate IPO activity in Asia will return to volumes seen in previous years?
DJ: I think anybody who believes the markets are going to come back in six months would appear to be too optimistic. It is more likely to be 12 to 24 months. China is not going to grow at the same rate as it used to and while a number of western investors would say growth of 6 per cent or 7 per cent a year is decent, the Chinese are taken aback by single digit growth.
The change in sentiment and the reality that even state-owned enterprises are now publicly announcing that they may make redundancies means there’s a marked change.
How much does volatility in Asian listings affect IPO strategy?
DJ: In China, the regulatory process may not be as procedural, objective and transparent as in other places and that could affect the IPO strategy. Companies may elect to list in Hong Kong instead of China.
However, from an Asian perspective, there is one thing that stands out to me, which is different from the U.S. or UK. In the U.S., there is a culture of focusing on quarterly profits, which means plans can be very short term. Most Chinese or Asian companies have a five-year plan and so one year’s volatility shouldn’t influence your strategy too strongly.