The Initial Public Offerings (IPO) market of 2022 remained somber, as the unpredictable challenges this year made investors wary of taking risks and investing in newly-listed companies. Global IPOs fell 44% year-over-year in the first three quarters of 2022, according to consultancy firm Ernst & Young (EY). Narrowing our focus, we saw that Chinese companies could only raise $536 million from U.S. listings so far this year. However, as some obstacles ease, including delisting fears and China’s zero-COVID policy, 2023 may look bright for Chinese IPOs.
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Why Chinese Stocks Fell Out of Favor This Year
Since the summer of 2021, both China and the U.S. have imposed new rules on Chinese companies seeking to trade on U.S. exchanges. For instance, the Cyberspace Administration of China mandated data security reviews for several Chinese companies before being allowed to list abroad. This compromised the valuations of the IPOs. Moreover, the Holding Foreign Companies Accountable Act of 2020 gave the U.S. SEC the ability to delist Chinese companies if audits are not reviewed for three consecutive years.
The fear of getting kicked out of American exchanges gripped Chinese companies further after tech firm Didi Chuxing Technology faced an investigation from the SEC and ultimately delisted from the NYSE in 2021, only six months after its IPO.
Also, the shallower pockets of investors amid high inflation meant that there was not enough money in the market to fund an IPO. Moreover, China and the U.S.’s ongoing drama regarding the semiconductor industry kept investors uncertain and kept them away from Chinese IPOs.
As a result, Chinese companies raised 96% lesser than last year from listings in the U.S. Not only that, but the amount raised by Chinese IPOs from Hong Kong listings was also less than 33% year-over-year.
Looking Brighter in 2023
Now, things are looking up for the audit dispute situation between the U.S. and China. Both nations stand on common ground and have taken the first step to diffuse the situation by reaching an agreement for the U.S. to conduct inspections within China’s borders.
Additionally, the Chinese government drastically eased its COVID-19 restrictions earlier this month, which, according to some bankers, should fuel demand for IPOs from Chinese companies. A recovery in valuations of Chinese companies is also on the cards as investors warm up to them.
In September this year, Bob McCooey, vice chairman of Nasdaq (NASDAQ:NDAQ) mentioned that the exchange had a very strong pipeline of Chinese companies that seek to list on it in the months ahead. Among those that are awaiting U.S. IPOs in 2023 is Zeekr, an EV brand under Zhejiang Geely Holding Group.
Recovery – Slow but Steady
That said, the global IPO market is still expected to heal at a slow pace. The Financial Times even said that the first half of the year is more likely to be sluggish, if not “comatose,” for the global IPO market.
The Wall Street Journal pointed out that the recovery in international IPOs from China is expected by dealmakers to come gradually, picking up pace in the second quarter and accelerating in the second half of 2023.
Whatever the pace, 2023 should treat Chinese companies seeking U.S. listings better than this year did.
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