Analysts and market insiders said a growing trend of high-quality Chinese companies trying to delist from the Hong Kong Stock Exchange due to low valuations will deal a blow to the Hong Kong capital market.
Since November, at least 10 Chinese companies with Hong Kong listings have unveiled plans to either delist, spin off assets and list them in China or sell a controlling stake to a mainland-listed company. There were only a handful of such deals in 2012, 2013 and 2014.
To meet the challenges posed by this tendency, analysts urged the Hong Kong capital market to more closely integrate with the mainland's A-shares.
UBS has identified 38 Hong Kong-listed Chinese companies with characteristics that are similar to those recently delisted, using criteria such as negative share price performance since listing; a forward price-to-earnings multiple below 30; and cases in which founders own more than 40 percent of a company, according to Reuters.
One example is Dalian Wanda Commercial Properties, owned by China's richest man, Wang Jianlin. It announced its delisting plan in March, and Reuters reported on Wednesday that Dalian Wanda is considering a backdoor listing in Shanghai. This refers to the practice of buying a shell company as a way to establish a listing.
"Low valuation and low trading volume make Chinese companies want to be delisted" from Hong Kong, said Hong Hao, managing director and chief strategist at BOCOM International Holdings Co.
"Chinese companies have been an important contributor to the Hong Kong market. Without these high-quality companies, Hong Kong will not be the same," said Hong.
Yang Feng, founding partner and chief executive officer of Shenzhen-based Blue Ocean Capital Group, said Chinese companies' delisting will influence investors' participation in the Hong Kong market.
