China AI supply-chain IPOs hold firm despite valuation pullback, Citi says

Chinese AI supply chain companies' listings are expected to remain resilient despite growing valuation concerns and heightened regulatory scrutiny, according to Simon Yuan, head of China investment banking at Citi. Despite recent valuation declines in data center firms, largely stemming from the US market, future AI supply-chain listings are anticipated to continue in Hong Kong, Yuan disclosed.

The market is bolstered by a balanced split between domestic Chinese and international demand, with local liquidity playing a crucial role, particularly with increasing capital flowing southbound from the Chinese mainland, Yuan explained on the sidelines of the IMF meetings in Bangkok. However, if the entire AI cycle experiences volatility in the US, as witnessed in recent weeks, it could impact Hong Kong as well, he cautioned.

Many Chinese hardware firms have actively established manufacturing facilities outside mainland China, thereby enabling better service delivery to global customers and mitigating geopolitical risks, Yuan pointed out. The recent surge in Chinese hardware suppliers has been driven by the global AI infrastructure boom, resulting in heightened sales volume growth and increased unit prices, he added.

Looking ahead to next year, Hong Kong's equity capital markets are expected to pivot away from pure hardware focus towards Chinese artificial intelligence models and application developers, provided these companies possess a proven business model characterized by substantial growth and profitability, Yuan emphasized. In the first nine months of the year, 118 firms went public in Hong Kong, collectively raising HK$388 billion ($49.4 billion), marking a 106% year-on-year increase.