IPO capital market shift to China slower than expected against US growth

08 April 2019 Consultancy.asia

While the Chinese market is set to become increasingly popular for initial public offerings, new analysis from PwC shows that growth has been slower than expected with the US continuing to dominate.

The financial crisis saw financial markets come close to a complete collapse, with a credit crunch taking hold that derailed much of the coming years in terms of economic growth. The period following the crisis saw IPOs take a backburner. However, as company values increased, a relative boom in exits took place during the middle of the decade, which included a large number of companies going public.

Now, the coming decade is likely to see rapid growth in the developing world – bringing increased interest in the regions’ share-markets for new listings. Looking into the current and future landscape of the global capital markets, PwC’s latest ‘Capital Markets in 2030’ report takes in the views of 370 executives working at some of the world’s largest organisations and examines market developments since 2011.

Ten largest exchanges by market capitalisation for year 2018

 

The previous survey suggested that emerging market exchanges would rapidly outperform, and thereby displace, developed market exchanges. This prediction however has not come to pass. The further prediction that Chinese markets will be larger than US markets by market capitalisation by 2030 also now looks unlikely with developed market exchanges continuing to grow.

By-and-large, the world’s largest exchanges, the NYSE and NASDAQ, saw significant growth over the years since 2011. The NYSE nearly doubled in size, while the NASDAQ more than doubled. Meanwhile, emerging market exchanges have been relatively slow to grow, with Shanghai up around 50 percent of its 2011 market capitalisation and Hong Kong growing at a similar rate.

When comparing growth, the combined markets of the US – at $30.4 trillion – are now three times the size of their Chinese counterparts on a market capitalisation basis, up from 2.7 times greater in 2011. In terms of the value raised through IPOs on the respective markets since then, the US remains the leading contender, with almost half a trillion raised, while major Chinese markets saw around $300 billion raised.

Projected major regions for IPO issuers by 2030

 

The respondents were asked to predict which country would see the highest level of capital raising in 2030. China took the number one spot, attracting 55 percent of responses, followed by India at 45 percent and the US at 41 percent. This is well below the previous survey, where 80 percent said China would be the top issuer by 2025, with the downgrade in expectation reflecting the political and economic constraints of China and India.

With Singapore (12%), Indonesia (8%) and even Thailand (1%) attracting attention – as well as the ongoing presence of Japan and South Korea, the relative diminution of China since 2011 could also reflect increasing interest in the broader region, the report citing HKEX’s Head of Streagy James Fok; “We need to look at the development of the economies around Asia. There are significant opportunities for companies in the Southeast Asian time zone.”Markets beyond home exchange considered for IPO in 2030

Furthering the dip in Chinese market sentiment, the survey also found that respondents now think differently about future preferences for cross-border IPO exchanges. The NYSE took the number one spot, by a margin, at 37 percent, followed by the NASDAQ at 26 percent. London remains a strong contender in 2030, at 3rd equal with Hong Kong, both on 24 percent. India then comes in fifth followed by Shanghai, at 21 percent.

This collective response contrasts significantly with the previous survey, which showed China, India and Brazil were predicted to be the markets of choice for cross-border IPOs in the future – in the first, third and fourth spots in voting respectively. One reason given for the shift is that many companies have different avenues to raise their profiles in overseas markets, with local indices often preferred for better valuations.

“Although the growth of emerging market exchanges has been more subdued than anticipated in 2011, Chinese and Indian companies are still expected to dominate future new issues,” concludes PwC IPO Centre lead Ross Hunter. “While further progress in the key emerging market economies will support the growth of their exchanges, the pace of the shift in balance to these exchanges has perhaps moderated.”

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BCG backs Bakkt as PwC tips big year ahead for crypto sector

03 January 2019 Consultancy.asia

Cryptocurrency bourse Bakkt has been backed to the tune of $182.5 million in a funding round featuring big name investors including Boston Consulting Group – as PwC Asia crypto leader Henri Arslanian predicts a big year ahead.

Established by NYSE parent Intercontinental Exchange (ICE) and now set for a live launch early this year following recent regulatory delays, mainstream cryptocurrency futures trading platform Bakkt has closed a $182.5 million funding round with notable investors including Microsoft ventures arm M12, Hong Kong private investment firm Horizon Ventures, Galaxy Digital, and global strategy and management leaders Boston Consulting Group.

“Blockchain technology holds tremendous potential to enable new business models and trusted ecosystems,” said BCG Digital Ventures founder Sean Collins on the announcement of Bakkt in August, when BCG was named a partner alongside Microsoft and Starbucks. “By leveraging and developing fundamental market infrastructure, the Bakkt platform will enable firms across industries to accelerate a range of innovation.”

Designed as an ‘intermediary between traditional investors and the volatile cryptocurrency market, the launch of Bakkt is a significant step in bringing greater public and institutional credibility to cryptocurrency, which has gained ground over the past year despite hits to the market. “Notably, 2018 was the most active year for crypto in its brief ten-year history,” said Bakkt CEO Kelly Loeffler in a blog-post.BCG backs Bakkt as crypto market tipped for big 2019“This was evidenced by rising investment in distributed ledger technology and digital assets, as well as by blockchain network metrics such as daily bitcoin transaction value and active addresses. Yet, these milestones tend to be overshadowed by the more narrow focus on bitcoin’s price, which has been seen by some, as a proxy for the potential of the technology,” Loeffler continued, noting that previous technological advancements didn’t unfold in the age of Twitter.

The bullish sector outlook for 2019 is shared by crypto proponent and PwC Fintech & Crypto leader for Asia Henri Arslanian, who in an interview with Bloomberg cited the launch of Bakkt and involvement of other reputable financial players as a signpost for the positive road ahead, predicting that even more will jump on during the course of the year – given comfort by increased regulatory clarity as seen last year in Hong Kong, Switzerland, Gibraltar and Malta.

In terms of ongoing crypto-cynicism, fueled by a poorly performing market over the past year following incredible headlines declaring the digital currency’s all-conquering rise, Arslanian points to parallels in the evolution of Silicon Valley – suggesting the crash of bitcoin prices – exemplified by Bitcoin’s dive from ~$20,000 to $ 3,689 barely twelve months later – may actually serve to pave the way the forward.

“In other industries there are booms and busts, I think some of the positive news of the crypto fall was it actually cleared a lot of noise in the crypto sector,” Arslanian said. “Like in the dot com boom, you’ll have some companies that’ll survive this boom and those may change the world in ways we can’t even imagine today. But in the short term there’s definitely a lot of crypto companies that are hurt.”

Related: PwC Hong Kong follows EY Switzerland in accepting Bitcoin payment.