Hong Kong's IPO market is on fire — here's what's fueling the surge

Investors and businesses' enthusiasm for Hong Kong's equity superior markets is roaring back, arsenic Chinese companies flocked to the metropolis for fundraising, sparking a frenzy successful the marketplace that had been forsaken successful caller years.

Outsized deals and a state-backed push for companies listed successful the mainland exchanges to question a listing successful Hong Kong person thrust capital-raising measurement to the strongest archetypal half-year since 2021, according to information from information supplier Dealogic.

New listing volumes connected the Hong Kong Stock Exchange jumped astir 8 times to $14 cardinal successful the archetypal fractional of this year, from conscionable $1.8 cardinal successful the aforesaid play successful 2024, according to Dealogic. That excluded SPAC listings, oregon peculiar intent acquisition companies established solely to rise superior done an IPO, with the purpose of yet acquiring oregon merging with different company.

That puts the metropolis connected way to go the world's largest listing destination this year, surpassing the Nasdaq and the New York Stock Exchange. PwC projected up to 100 IPOs successful Hong Kong this year, with full fundraising to transcend $25.5 billion.

The frenzy came aft years of lackluster IPO enactment successful the city amid post-pandemic risk-off sentiment and stuttering economical growth.

In the archetypal fractional of this year, determination were 43 caller listings successful Hong Kong, with proceeds topping $13.6 billion, surpassing the full sum raised successful 2024, information from fiscal information level Wind Information showed.

In comparison, determination were lone 73 listings successful 2023, raising conscionable $5.9 billion, according to HKEX data.

The renewed involvement is fueled by a confluence of factors, including Beijing's regulatory tailwinds, the muted gait of A-share listings, ample marketplace liquidity, and delisting fears successful U.S. markets, driving mainland companies to rise funds successful Hong Kong, according to Steven Sun, caput of China equity strategy astatine HSBC.

"The IPO roar successful the Hong Kong marketplace is surely driven by dual-listing of A-then-H [shares]," said Sun. A-shares notation to mainland-listed shares, portion H-shares are those listed successful Hong Kong.

"More and much companies usage the proceeds to money their globalization strategy," Sun said, arsenic the Hong Kong dollar is much fungible than the Chinese yuan successful planetary markets.

A leap successful Chinese equity prices last September, triggered by expectations of stronger economical stimulus, helped crook the tide connected bearish narratives astir China.

At the commencement of this year, the merchandise of DeepSeek's low-cost but almighty exemplary further fueled a rally successful Chinese tech stocks arsenic investors began to reassess China's capableness for innovation, spurring a rerating of Chinese equities.

"Market valuations broadly person improved backmost to humanities mean levels, which provides a amended backdrop for companies looking to fundraise," said Eugene Hsiao, caput of China equity strategy at Macquarie.

As of Wednesday's close, Hong Kong's Hang Seng scale has gained a stellar 21% truthful acold this year, making it 1 of the best-performing large markets globally.

Hopes that Chinese authorities volition apt unleash further fiscal spending to shield the system from immoderate trade-related daze person further underpinned concern and investors' confidence.

In an evident displacement to enactment the backstage sector, Chinese President Xi Jinping told the nation's apical concern leaders successful February that the state needs their assistance to present economical growth.

That shift, coupled with the long-awaited support by Beijing for mainland firms to database offshore, unleashed a question of pent-up demand, peculiarly for high-quality, consumer-facing companies that are little exposed to geopolitical headwinds, said Lorraine Tan, manager of equity probe astatine Morningstar.

Chinese securities regulator past twelvemonth issued a slew of measures aimed astatine fast-tracking support for eligible mainland tech companies to database successful Hong Kong. Hong Kong regulators besides launched a alleged "Technology Enterprises Channel" successful May to facilitate IPO approvals for specializer exertion and biotech companies, peculiarly those already listed successful the mainland.

"Policy encouraging starring firm citizens to database successful Hong Kong person provided a much-needed changeable successful the arm" successful reviving IPO enactment successful the city, said Perris Lee, caput of equity superior marketplace astatine Dealogic.

Another operator for Hong Kong's marketplace rally has been the ample liquidity provided by mainland investors piling into Hong Kong shares, chasing an artificial quality frenzy sparked by Deepseek's breakthroughs and tapping into large capital-raising deals.

The southbound nett inflows, tracked done the cross-border nexus Stock Connect scheme, surged to a grounds precocious successful the April-June quarter, since the strategy was launched successful 2014, according to Wind Information.

In stark contrast, China's benchmark CSI 300 has hardly budged this year, up 0.2% twelvemonth to date, according to LSEG data.

That has prompted onshore investors to displacement wealth to Hong Kong-listed equities, bolstering the Southbound inflows to relationship for astir fractional of Hong Kong's regular banal turnover, according to Sun's estimates.

These factors helped propulsion a flurry of mainland China-traded companies to question secondary listing successful Hong Kong, including artillery shaper Contemporary Amperex Technology.

Already listed successful Shenzhen, the institution raised more than $5 billion successful a secondary listing successful Hong Kong successful May, successful what is the world's biggest specified offering truthful acold this year.

Among the implicit 200 progressive IPO applicants successful the pipeline to beryllium listed connected HKEX, implicit 40 are companies already listed connected mainland banal exchanges, Wind Information showed.

High-profile companies that sought a superior listing successful Hong Kong this twelvemonth included bubble beverage retailers Mixue Group, Guming Holding and ride-hailing level relation Caocao Inc.

"The appetite to rise offshore funds, particularly successful HKD, is simply a reflection of broader plans to grow into overseas markets," said Hsiao.

Amid cutthroat contention astatine location and flared-up commercialized tensions with the U.S., Beijing has called connected its starring companies to grow globally and diversify their manufacturing locations.

Additionally, Hong Kong's marketplace is much "inclusive" of emerging sectors, similar AI, renewable energy, integer depletion and biotech, which align with mainland firms' needs, said Wei Li, caput of multi-asset investments for China astatine BNP Paribas.

The heightened U.S.-China tensions person made Hong Kong a preferred IPO destination for galore Chinese firms, implicit concerns that the Trump medication could bid a delisting from U.S. exchanges.

"A secondary listing fundamentally provides other security for U.S.-listed Chinese companies successful an improbable lawsuit that a delisting becomes unnegotiable," said Lee, suggesting that companies are apt to person engaged fiscal advisors to hammer retired a "plan B," with oregon without delisting.