Asia share offerings plunge 60% in first half of 2016, to lead to new job cuts

An investor watches stock price movements at a securities company in Beijing on June 15.
An investor watches stock price movements at a securities company in Beijing on June 15.PHOTO: AFP

HONG KONG (REUTERS) - Share offerings in Asia-Pacific ex-Japan sank nearly 60 per cent in the first half of 2016 amid the weakest activity since 2008, weighed by volatile equity markets, China's slowdown and uncertainty over Britain's exit from the European Union.

The drop underscores expectations of further job cuts in a financial industry already reeling from declining revenues, and with the impact of Britain's decision last week to leave the EU a major new source of instability.

Proceeds in the region's equity capital markets (ECM) tumbled to US$66.6 billion in the first six months of the year from US$155.3 billion in the same period in 2015, according to preliminary Thomson Reuters data through June 27.

Global markets were on edge for most of the first half on concerns over the US Federal Reserve's plans for higher interest rates, China's slowest growth in 25 years and Britain's vote on EU membership.

Global markets sank on Friday in response to Britain's EU exit vote, and uncertainty about what happens next could affect demand for listings across the region even as the outlook for China improves.

"The next couple of months are going to be volatile, but things in the UK will stabilise and the noise out of Europe will calm down," said George Taylor, co-head of Asia Pacific Global Capital Markets at Morgan Stanley. "Sentiment toward China isn't too bad. The country looks quite stable, given what's happening in Europe. Chinese fund managers are buying again."

Global investment banks were hardest hit by the slump in activity since most of them cannot rely as much on China's domestic market for deals and underwriting fees, which are dominated by homegrown firms.

Perennial leaders in ECM rankings UBS and Goldman Sachs saw the value of deals they worked on plunge 85 per cent and 89 per cent respectively, with their league table rankings dropping to nine and 12.

The slump in share sales could slash overall ECM headcount in Asia by 10 per cent to 15 per cent over the next six months in the investment banking sector, according to headhunting firms'estimates.

Major banks have announced thousands of job cuts worldwide over the past year, including HSBC, which plans to trim 25,000 staff, as well as Credit Suisse Group and Deutsche Bank.

"It's a very painful place to be in at the moment. There's so little activity, and any activity that is coming out is aggressively being fought over at very cut-price cost," said Garrett Tardrew, manager for financial services at headhunter Robert Walters in Hong Kong. "International banks are going to have to look at their ECM operations and make a big decision on how are they going to survive in this region if things keep going the way they do because it's a fairly dire situation."

Despite the expected volatility in the next few months, some large offerings from companies in the financial services sector, including banks and brokerages, should boost activity in the region, analysts and bankers said.

Other sectors expected to be active in the coming months include healthcare and telecommunications.

Postal Savings Bank of China (PSBC) is seen raising some US$8 billion in Hong Kong in the second half of the year in the world's largest IPO since 2014, while Vodafone Group is also expected to list its India business in a US$2.5 billion deal in the fourth quarter.

Chinese brokers looking to raise funds in Hong Kong include Everbright Securities Co Ltd, China Merchants Securities Co Ltd and China Securities Co Ltd (CSC).

"Over the next two years, APAC (Asia Pacific) might have more large ECM opportunities than Europe or the US," said Kefei Li, co-head of ECM for Asia at Deutsche Bank.