Recently, we have discussed how many international law firms have benefited from the less restrictive markets in Asia, as well as the relative buoyancy of the region’s economy compared to the US and Europe . However, articles published recently in Legal Week provide the first indication of a Chinese economic slowdown beginning to impact legal markets.
While buoyant equity capital markets prevailed in Asia throughout the last few years (particularly 2010) and sparked a talent war for lawyers with local Hong Kong law capabilities, 2012 has seen a relative slowdown in Hong Kong listings. Data from Thomson Reuters demonstrates that activity levels are down considerably in the year to date compared with the same Q1 to Q3 period over the three previous years.
Not only has the volume of activity been reduced, but the pace of transactions has reportedly slowed, with 2012 seeing a number of potential listings postponed, including copper producer China Nonferrous Mining Corp and car dealer China Yongda Automobiles Services.
This reduced demand, coupled with increased competition resulting from an influx of U.S. law firms vying for this work, has led to increased pricing pressure. According to Legal Week, a drop of anywhere between 20 and 40% in prices for IPO work in Hong Kong has been reported.
However, many law firms remain relatively positive with respect to the overall appeal of Hong Kong as a capital markets center. The market is known to be particularly volatile and often oscillates between highs and lows in demand, so the slowdown is not a surprise to many. Hogan Lovell’s Asia Head, Crispin Rapinet, has suggested to Legal Week that the root cause is the current global economic environment:
“We’re suffering more from a lack of investor confidence than anything else, and much of that is being driven by the eurozone crisis…it’s hard to believe that the popularity of the HKEX is going to disappear because it is the main centre for raising capital in China”.
Posted by Tricia Pelton