Hong Kong stocks slipped almost 1 percent and turnover shrank on Monday - the first trading day after the Christmas holiday break - in tandem with a steep fall on the Chinese mainland markets.

The retreat in the SAR and on the mainland bourses were attributed to a combination of growing apprehension over an uncertain global macroeconomic environment following the latest US interest-rate hike, and a faltering Chinese economy, fueled by Sunday's release of weak industrial profits for November.

The Hang Seng Index (HSI) shed 0.99 percent, or 218.51 points, to close at 21,919, while the Shanghai Composite Index shed 2.59 percent.

Eight months ago, the launch of the much-heralded Shanghai-Hong Kong Stock Connect, backed by global investor appetite for mainland enterprises, drove turnover on the Hong Kong bourse to a record HK$293 billion.

According to Bloomberg estimates, the HSI benchmark valuation has fallen to levels similar to that of shares traded on Pakistan's stock market, as the mainland's economic slowdown and higher borrowing costs in Hong Kong dampen the outlook for corporate earnings.

With an anticipated thin trading volume in the local stock market in the near future, accounting advisory firm Ernst & Young predicts that the city's initial public offering (IPO) market will see just 110 deals next year, with HK$260 billion expected to be raised.

The chief IPO candidates in 2016 would be companies from the financial, technology, media and telecommunications, retail-and-consumer products, and construction sectors, it said.

According to Ernst & Young, the SAR regained the crown of being the first IPO venue through total proceeds raised this year, with new five-year records set for the number of IPO deals and proceeds raised.

Hong Kong saw 121 IPO deals in 2015, raising a total of HK$261.4 billion - up 11 percent and 12 percent, respectively, from last year. The bulk of them came from mainland companies.

"Hong Kong sees a multitude of challenges in the IPO market, such as the global and mainland economic slowdown, the risk of capital flight following the latest US interest-rate rise, volatility in the yuan exchange rate and direct market competition when IPO activities in the A-share market resumes," warned Ringo Choi Wai-wing, managing partner for southern China at Ernst & Young.

"Looking ahead, we recommend and support the Hong Kong bourse taking action to scale up and optimize the Shanghai-Hong Kong Stock Connect, proceed with the Shenzhen-Hong Kong stocks link and other innovative "connect" business models linking the Hong Kong, mainland and overseas markets in order to take the Hong Kong exchange to the next level," said Ernst & Young partner Dilys Chau Suet-fung.

Deloitte Touche Tohmatsu - one of the "Big Four" accountancy firms - said the main IPO firms next year would be from the mainland's financial services institutions, pharmaceutical firms and State-owned enterprises. The IPO surge will be fueled by the central government's ongoing reforms in the financial system and State-owned enterprises.

oswald@chinadailyhk.com

(HK Edition 12/29/2015 page8)