There’s been a dramatic political shift in the UK: Rishi Sunak’s Conservative Party took huge losses in last week’s general election and Sir Keir Starmer’s Labour Party is back in power after 14 years.
What does that mean for markets? ‘The UK has suffered from uncertainty and political instability since Brexit. That may begin to improve,’ notes Matt Evans, portfolio manager for UK sustainable equities at Ninety One, in a statement sent out to journalists.
A record-breaking number of cabinet ministers were ousted as the votes came in: defense secretary Grant Shapps, education secretary Gillian Keegan and House of Commons leader Penny Mourdant – who had been talked about as a potential Tory party leadership contender – to name a few.
Jeremy Hunt, the outgoing chancellor, won his newly created seat by less than 900 votes. Which brings us to Shein.
Back in February, Hunt was reportedly urging the Chinese-founded (very) fast-fashion online giant to direct its IPO to London, following a frosty reception in the US and as the London Stock Exchange (LSE) continued to try to turn around its fortunes. In 2022, the LSE began a raft of changes designed to attract new life to the old exchange but has largely continued its drought of big-name IPOs, as well as losing a number of UK firms to US exchanges or private equity.
And it seems Hunt’s efforts worked. Shein, which could fetch a market valuation of around £50 bn ($64 bn), filed for a London IPO with the Financial Conduct Authority (FCA) in June. But it remains far from plain sailing.
‘Shein did try to explore a listing in the US because, of course, it is the largest stock market in the world,’ says Hung Tran, non-resident senior fellow at the Atlantic Council GeoEconomics Center and former executive managing director at the Institute of International Finance.
‘To be listed there is really to have your shares exposed to a large pool of investors. But that initiative ran into serious headwinds, particularly from US politicians in Congress and elsewhere: Shein is accused of using forced labor, particularly in its supply chain in China – specifically the use of cotton and other material from Xinjiang.’
Tran points to the company’s business model as another issue. ‘Shipping small quantities directly from China to the customer means it tends to escape customs inspections for duties. This is particularly a problem in the US, which imposed a lot of tariffs on Chinese products,’ he explains. ‘Shein has therefore been accused of trying to find a way around US tariffs. There were further concerns around overall transparency and ESG.’
Speaking to IR Magazine two weeks ago, Tran predicted the same issues would remain a challenge with a London listing. ‘The same political concerns raised in the US – around forced labor, transparency and ESG – are being voiced by many UK MPs,’ he noted at the time.
Since then, Stop Uyghur Genocide, a UK-based human rights group, has launched a legal campaign calling on the FCA to block any planned listing.
No knock-on effect
‘The same political concerns raised in the US – around forced labor, transparency and ESG – are being voiced by many UK MPs’
Hung Tran
London’s IPO woes have been well publicized, though in mid-June it did regain the European exchange crown from Paris – a feat that once would never have made headlines – when the total value of companies listed on the LSE hit $3.18 tn, overtaking the $3.13 tn total value of companies listed in Paris, according to Bloomberg data. This was attributed to uncertainty ahead of French elections, combined with recovery in the UK market after lengthy underperformance.
Despite this recent uplift, Tran says any bumper Shein IPO is unlikely to create a wider appeal among Chinese companies looking for a foreign stock exchange to trade on.
‘It would not be a game-changer for the LSE in my view,’ he says. ‘It is helpful, of course, if you can have a sizable listing but the market value of Shein has been declining from around $100 bn a year ago to around $60 bn. It’s still a very big company, but it also depends on how much it will float in its IPO, given that the LSE has changed its minimum amount from 25 percent to 10 percent.’
For Tran, US venues will continue to hold by far the widest appeal. ‘As for other Chinese companies – though of course Shein is now headquartered in Singapore, not China – they will continue to try to be listed in New York to expose their shares to that deeper pool of capital and savings,’ he says – despite ongoing regulatory hostilities.
‘And, increasingly, the alternative to New York will be contested by all stock exchanges. If Chinese companies are listed in Hong Kong, for example, they can enjoy an even deeper liquidity pool for the trading of their shares, while also being easily accessible to institutional investors worldwide.’
An eye to Hong Kong
Just as UK pension funds are being urged to invest in the UK stock market and infrastructure, so too is China working to boost the appeal of Hong Kong as a trading destination for mainland Chinese companies.
Earlier this year, the Chinese financial regulator announced plans to make Hong Kong IPOs easier as well as adding new measures to its Stock Connect system to include real estate investment trusts and yuan-denominated stocks listed in Hong Kong – a move that would promote the yuan as an international currency.
A spokesperson for the Stock Exchange of Hong Kong Stock (HKEX) describes the trading venue as ‘the IPO venue of choice for mainland Chinese companies seeking to raise funds from international investors.’
The spokesperson adds that through the exchange’s Stock Connect program – now 10 years old – HKEX supports ‘international investors’ access to mainland equities markets, as well as Chinese investors’ access to Hong Kong-listed equities.’
‘Increasingly, the alternative to New York will be contested by all stock exchanges.’
Hung Tran
The ‘enhancements’ made to the scheme now make it ‘the world’s only international market for issuers to raise funds from both onshore mainland and international investors,’ adds the spokesperson.
Like London, Hong Kong has also been updating its listing regime as it seeks to attract more ‘new economy’ companies. It offers weighted voting rights, for example, and opportunities for pre-revenue biotech companies. ‘Most recently, we added a new listing chapter for specialist technology companies from growth industries such as AI and new energy, and we welcomed our first such listing just last week,’ notes the HKEX spokesperson.
Still, it is New York that retains the biggest appeal, stresses Tran – even amid frosty US-Chinese relations, which are unlikely to change any time soon.
‘If Trump is selected and assumes the presidency next year, he will be even more hostile,’ predicts Tran. ‘Trump says he will impose 60 percent tariffs across the board on anything coming out of China – and 200 percent on Chinese electric vehicles made in Mexico. So Chinese companies should expect a worsening of the economic relationship – but also be mindful that it is unfriendly under the Democrats, too.’
The LSE declined to comment for this article. Shein declined to comment on anything IPO-related.
