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How are China’s stock markets developing and evolving?

China equities portfolio manager May Ling Wee discusses the buoyant initial public offering (IPO) market and the impact of 're-shoring' and rising cross-border flows on Chinese markets.

May Ling Wee, CFA

May Ling Wee, CFA

Portfolio Manager

4 Mar 2021
5 minute read

Key takeaways:

  • Chinese stocks and IPOs have enjoyed strong demand post-COVID, with its economy back to growth since the second quarter of 2020.
  • Geopolitics do not undermine the attractiveness of investing in Chinese businesses, or Chinese companies’ decision to list on US stock exchanges.
  • Cross-border flows, particularly southbound are increasingly important, as is maximising value from where IPOs are listed.
  • ‘Re-shoring’ of Chinese stocks is changing the composition of the Hong Kong market, mirroring the evolving Chinese economy.

Demand for Chinese stocks has been strong following COVID-19. China was ‘first in and first out’ of the pandemic, which helped its economy grow above pre-COVID levels in the second quarter of 2020. Combined with a strengthening currency, these factors have provided a conducive backdrop for Chinese companies to raise capital via initial public offerings (IPOs) on the Hong Kong, domestic Shanghai/Shenzhen, and US stock exchanges in 2020 and year to date.

A strong equity pipeline of high-quality businesses in the technology, consumer and healthcare sectors has led to a total of approximately US$51bn raised via IPOs in Hong Kong last year, largely for Chinese-owned businesses. This total is the highest amount since 2010 when around US$57bn was raised according to Morgan Stanley Research.1 If we include other equity raised, this total rises to US$95bn. Likewise, in China’s onshore A share (Shanghai and Shenzhen) markets, IPO activity was elevated too, with circa US$72bn raised from IPOs.2

The attractiveness of Chinese IPOs and businesses trumps geopolitics

The previous US administration imposed executive orders preventing US persons from investing in Chinese companies deemed to be linked to the Chinese military. The subsequent delisting of these companies from US stock exchanges and the indices of global index providers (eg. FTSE Russell, MSCI, S&P Dow Jones) appear to be almost inconsequential. Although global investors may be invested in some of the affected companies, this will always remain a bone of contention in terms of how close or how removed these companies are from China’s People’s Liberation Army. The attractiveness of investing in Chinese private sector businesses in terms of growth and profitability is unlikely to stop driving global (including US) capital into China. China’s efforts to open up its equity and bond markets to global portfolio flows is likely to continue despite geopolitical spats. The issue of US-listed Chinese companies allowing US securities regulators to access their financial audit papers remains unsettled. But last year, we saw the successful US listing of Chinese electric vehicle (EV) startups, a leading online real estate transaction platform, a fintech company and other internet service companies. Accounting firm, PwC noted that Chinese companies raised almost US$12bn of capital on US stock exchanges last year, four times the amount raised in 2019.3

Rising cross-border flows, choice of market listing is key

While global capital has always been present in the Hong Kong market for Chinese assets, today Chinese capital, represented by southbound capital from mainland China’s retail investors is growing in significance in Hong Kong. China’s household financial assets are estimated to have grown by around 16% (circa US$3.8tn) in 2020, with some of this wealth finding its way into domestic mutual funds that invest in the Hong Kong market.4

In January 2021, southbound trading activity from China was estimated to have been around 30% of total trading in Hong Kong. While global investors typically seek out the best opportunities in the domestic markets of Shanghai and Shenzhen (northbound capital), Hong Kong and the US exchanges, China’s ‘southbound’ investors are also seeking out the best opportunities in the Hong Kong market. These cross-border flows are likely to increase over time as Chinese household financial wealth continues to grow and to find its way into both the Chinese onshore and offshore markets. At the same time, companies are also casting their capital raising nets wider, seeking listings on both the onshore markets and offshore in Hong Kong.

That said, we have also seen some companies choosing to list on the onshore markets. The rationale is that onshore markets have been known to be more receptive of much higher valuations on emerging and strategic industries than investors in the Hong Kong market. For example, Chinese auto manufacturers have selected to list on the domestic onshore markets to fund their EV ambitions. We also saw China’s leading semiconductor foundry conduct a successful public offer in Shanghai, raising around US$7.6bn last year, the largest amount raised by a single company on Chinese domestic exchanges last year. Healthy and buoyant domestic stock markets enable China’s emerging and strategic industries to fund themselves via public capital instead of solely from the state’s coffers or loans.

Conversely, healthcare companies have tended to select Hong Kong for their IPOs, where demand for high quality healthcare stocks is stronger because of the smaller universe of healthcare companies compared to onshore markets. Hong Kong has become a popular listing venue for biotech companies.

Implications on Hong Kong from ‘re-shoring’

While the imposition of Hong Kong’s National Security Law cast doubts on the viability of Hong Kong as a global financial centre, Hong Kong continues to receive capital inflows and its stock markets have been buoyant. The Hong Kong Exchange ranks second behind the NASDAQ in terms of total IPO capital raised in 2020, with Shanghai and Shenzhen among the top five. PwC predicts that capital raising will total approximately US$54-59bn in 2021, which could return Hong Kong to its former position as the global leader in IPOs.5

The ‘re-shoring’ or re-listing of Chinese companies previously only listed in the US but now also listed in Hong Kong is impactful. These new economy stocks are shifting the market’s composition, from being dominated by financials, real estate, conglomerates (and previously energy and telecom) companies to one where ‘newer’ economy companies such as those within healthcare, technology and consumer-focused sectors make up more than half the total market capitalisation. These highly traded stocks account for an increasingly larger proportion of market turnover, compared with Hong Kong’s ‘old’ economy shares that are typically held for longer for their provision of dividends and income. The make-up of Hong Kong’s market, now largely represented by technology, consumer-facing businesses and service industries is reflective of China’s progression from a fledging, industrialising economy some 30 years ago to the more developed and maturing economy that it is today.


These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.


Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


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