A pedestrian wearing a protective mask walks past a stock ticker at the Exchange Square complex, which houses the Hong Kong Stock Exchange, in Hong Kong, May 29, 2020. (PHOTO / BLOOMBERG)

New Hong Kong listings are tracking at their slowest pace since the aftermath of the global financial crisis, as weaker markets chill sentiment.

Just seven companies have gone public in the second quarter so far -- on track for the fewest since 2009, according to data compiled by Bloomberg. The muted second-quarter activity stands in sharp contrast to the rush to go public seen last year or even at the start of 2021.

First-day performances have also struggled: May’s initial public offerings - which includes warehouse and distribution company JD Logistics Inc and property manager Central China Management Co - delivered the worst average debut performance in 15 months, the data show.

The Hong Kong Special Administrative Region’s stock market tumbled into a technical correction earlier this year, dragging valuations further. The benchmark Hang Seng Index is one of the world’s worst performers since its February high

 “Investors are no longer comfortable paying sky-high valuations for some companies,” said Louis Tse, Hong Kong-based managing director at Wealthy Securities Ltd.

The Chinese mainland’s top-three tech firms Tencent Holdings Ltd, Alibaba Group Holding Ltd and Meituan have lost more than US$400 billion in value from highs just four months ago. The Hong Kong Special Administrative Region’s stock market tumbled into a technical correction earlier this year, dragging valuations further. The benchmark Hang Seng Index is one of the world’s worst performers since its February high.

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As a result, capital raised on the HKSAR stock exchange this year is only half of its levels last year. In comparison, volume on the Nasdaq has already surpassed its 2020 number, thanks to a boom in blank-check company listings earlier this year.

To be sure, the HKSAR’s year-to-date IPO volume is still more than triple the same period last year, with nearly US$23.9 billion raised. Meanwhile, the US SPAC boom is fizzling out.

Growth Trap

Worries about rising inflation are also making tech firms going public a harder sell as investors dump shares with rich valuations.

“We have seen some volatility and that has reflected on investors’ appetite, but deals that are priced appropriately will get done,” said Francesco Lavatelli, head of equity capital markets for the Asia Pacific region at JPMorgan Chase & Co.

Fintech firm Bairong Inc slumped 16 percent when it began trading in late March, while health-care company Zhaoke Ophthalmology Ltd dropped 15 percent in late April. JD Logistics Inc, which raised US$3.2 billion, closed only 3 percent above its offering price in its debut recently in contrast to another JD.com unit, JD Health International Inc, which surged 56 percent on its first day last year.

Next Blockbuster

The test for whether the HKSAR’s IPO market can stage a revival will come from some upcoming listings, with activity seen to be picking up again with share sales by companies including a dairy firm and a maker of invisible teeth aligners.

Large listings include China Youran Dairy Group Ltd’s offering of as much as US$799 million, which kicked off its roadshow on Monday. Biopharmaceutical firm CARsgen Therapeutics Holdings Ltd is looking to raise as much as US$401 million and also started taking investor orders on Monday.

Angelalign Technology Inc, the mainland’s leading invisible orthodontic producer, launched an IPO of as much as US$375 million on Thursday. The latter’s retail tranche was already about 674 times oversubscribed on its first day of order-taking, the Hong Kong Economic Journal reported.

At least three other companies started gauging investor demand for their IPOs on Monday, including mainland bubble tea chain Nayuki Holdings Ltd and two property management companies.

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Investors are also closely watching the reception to mega flotations, among them mainland gaming giant NetEase Inc’s music streaming arm which filed late May for an HKSAR IPO that could raise about US$1 billion.

“The market needs at least two or three blockbuster IPOs to revive the sentiment. That means you need both subscription ratio and first-day performance to surprise the market on the upside,” said Kenny Wen, Everbright Sun Hung Kai strategist. “The good days of the IPO market are not coming back yet.”