China will overtake London and New York by 2025 to become the preferred destination for companies around the world to raise equity capital, according to a survey conducted by PricewaterhouseCooper (PwC).
Nearly 80% of respondents said China would be the most favoured place for fundraising by 2025, and the same number also said that Chinese exchanges would raise more capital than any other international exchanges through initial public offerings, showed the survey, which included responses from almost 400 executives worldwide in August.
The report, titled Capital Markets in 2025, showed that London and New York are still regarded as the leading financial centres for access to international capital, with 72% and 74% of those surveyed saying that they would consider those markets respectively for an IPO on a foreign exchange.
However, when asked what they thought the position would be in 2025, those responses dropped to 27% and 39% respectively, due to the potential growth of capital markets activity in China (55%) and India (38%) by that time.
“It may seem that the rise of the East is inevitable, but established exchanges around the world would disagree with the pace of this shift. There have been major IPOs in the UK, the US, Spain and Poland this year and PwC expects this to continue in the near term. If we are set for an IPO ‘tug of war’ between West and East, it can only benefit companies and investors,” says Clifford Tompsett, a leader of PwC IPO centre.
Shanghai’s IPO market was mainly dominated by smaller deals this year, with companies raising a total of $15.6 billion via 36 new share sales, which is a drop in value compared with last year’s $39 billion via 25 deals, according to data from Dealogic.
The shift to the East is dependent on a number of critical factors, the key one being access. The Shanghai exchange is currently still closed to foreign issuers despite the Chinese government’s announcement back in 2008 that it would open the market. Respondents cited legal, regulatory and political uncertainties as the factors most likely to derail a move to emerging market exchanges.
Currently, developed markets are significantly bigger than their emerging markets rivals, so sustained growth will have to take place before exchanges in the East make a meaningful challenge.
However, PwC argued that as an indicator of the exponential growth in Asia so far, the combined market capitalisation of China’s Shanghai and Shenzhen equities markets has risen from $400 billion in 2005 to $4 trillion at the end of the fourth quarter of 2010.
Despite current volatility in the equity markets, the volume and value of listings on the Chinese bourses of Shanghai, Shenzhen and Hong Kong has remained strong, and should continue to gather momentum when confidence returns to the markets. “Companies realise that China offers unparalleled access to growth capital, and there are no signs this trend will slow down,” said Edmond Chan, a partner in PwC’s capital market services group.
