Better cooperation beneficial for both sides in the long term, say experts

While trading houses on the Chinese mainland and the Hong Kong stock exchange have told different stories in terms of market vitality during the first three quarters of the year, closer ties should be forged to facilitate the long-term development of companies in their exchanges, accounting services major Deloitte said.

The A-share market is expected to record 127 initial public offerings in the third quarter of 2019, up 46 percent year-on-year, Deloitte's third quarter IPO report said. The total financing of these companies is expected to amount to 140.1 billion yuan ($19.7 billion), up 20 percent from a year ago.

The Shanghai Stock Exchange is the favored listing venue in the A-share market. A total of 74 companies are expected to be listed at the Shanghai bourse by the end of September, with the total financing coming in at 88.6 billion yuan.

Anthony Wu, A-share Capital Market leader of Deloitte's National Public Offering Group, said that the technology-focused STAR Market, which began trading at the Shanghai Stock Exchange on July 22, is the driving force of the A-share market. A total of 33 companies have been listed on the new tech board with the financing amount reaching 47.2 billion yuan.

"The STAR Market has become a new landmark in the Chinese capital market. All the ideas are revolutionary, including its focus on high-tech companies, the introduction of the registration-based IPO mechanism, and the market-based pricing mechanism," said Wu.

As Deloitte expected, the STAR Market will continue to be the highlight of the A-share market for the remaining months of the year.

The SSE STAR Market 50 Component Index is likely to be introduced in October. As a result, the number of companies listed on this new tech board will further increase to 100 by the end of the year, with the total financing topping 125 billion yuan.

At the same time, the other three boards of the A-share market-the main board, the SME board and ChiNext-will see their total IPO numbers reach between 110 and 130 this year, with the financing on those boards reaching a minimum of 120 billion yuan.

"The STAR Market has performed steadily with the market-based pricing. Meanwhile, the central regulators have adopted solid and down-to-earth supervision on all capital. This has injected more confidence into the capital market. Therefore, we expect that there will be some unicorn companies or new economy companies with high market cap to be listed on the new tech board in the last quarter of this year," said Zhao Haizhou, associate partner of Deloitte's A-share department for the East China area.

On the other hand, the Hong Kong stock exchange is expected to record 98 IPOs during the first nine months of the year, down 38 percent from the year ago level. The total financing amount also contracted 49 percent year-on-year to HK$242.7 billion ($30.9 billion).

Volatility in global capital markets, including Hong Kong, has risen in the first three quarters of the year because of the China-US trade conflict, Brexit and other geopolitical uncertainties.

As a result, there have been fewer IPOs in Hong Kong over the first nine months, and fewer companies with dual-class share structures listing on the exchange, said Edward Au, co-leader of Deloitte's National Public Offering Group.

Closer cooperation between the Chinese mainland and Hong Kong markets will sustain the development of companies in the long term, he added.