By Huang Sheng

Once a written-off market, Hong Kong’s recent IPO activity suggests that the city's stock firms are shifting away from US listings, and may actually be benefiting from global trade tensions and geopolitical shifts. But what exactly is driving Hong Kong's IPO boom, and what implications does it have for investors and market dynamics?

In this article, CEIBS Professor of Finance, Associate Dean, and Director of EMBA Programme Huang Sheng answers these questions and more.

Why Is Hong Kong’s IPO market rebounding?

Hong Kong’s IPO market has made a remarkable comeback, spurred on by numerous Chinese companies seeking to list in the city. This rebound has been driven by a combination of macroeconomic and microeconomic factors working in tandem.

On the macro level, China’s economy has gradually bottomed out after years of slow growth. A turning point came when China's central government unveiled a stimulus package last September, marking a critical move toward counteracting the nation’s economic slowdown and meeting the government’s growth target. Since then, both macroeconomic fundamentals and corporate performance have shown signs of recovery.

This policy intervention, combined with improving fundamentals, has led global investors to re-examine Chinese assets, with Hong Kong emerging as a particularly attractive market given its relatively low valuations and perceived stability.

At the same time, global trends such as de-dollarisation have stirred capital markets worldwide. The US dollar index fell by over 10% in the first half of 2024, the sharpest decline in nearly four decades. This shift prompted major institutional investors, especially in Europe, to reduce their holdings of dollar-denominated assets and seek new investment opportunities elsewhere. Markets offering high-quality assets, such as Hong Kong, have benefited from this reallocation of capital flows.

A case in point is the rise of DeepSeek, which reignited interest in Chinese companies and triggered a wave of funds flowing into Hong Kong. This influx of capital, both from mainland Chinese and international investors, revitalised enthusiasm for the Hong Kong stock market and fuelled the recent surge in IPO activity.

On the micro level, institutional innovation and infrastructure improvements by Hong Kong Exchanges and Clearing Limited (HKEX) have played an important role. Over the years, Hong Kong regulators have remained aligned with market developments and striven to serve as an intermediary between global investors and Chinese high-quality assets, with initiatives such as the relaxing of listing requirements and the streamlining of approval processes, as well as the creation of a dedicated support channel for science and technology innovation companies, providing them with one-on-one guidance to go public more easily.

From a corporate perspective, companies such as Chinese home appliance manufacturer Midea Group and A-share battery giant Contemporary Amperex Technology Co. Ltd (CATL), may find Hong Kong’s market-oriented financing environment more efficient than mainland alternatives. The possibility to expand their global footprint and improve their corporate governance standards is another key advantage. Listing in Hong Kong allows companies to tap global investor pools from regions like the Middle East and Southeast Asia.

Moreover, Hong Kong caters to companies’ need to attract global talent, especially top scientific and technological talent and professionals with outstanding R&D capabilities, by offering them flexible equity-based incentives, such as stock options or restricted shares.

Finally, with an international capital market in place, companies seeking overseas ventures may find it easier to pursue overseas mergers and acquisitions or form industrial partnerships and joint ventures with global players. This strategic benefit encourages more firms to list in Hong Kong, contributing further to the IPO boom.

Together, these factors have propelled Hong Kong’s stock market from a period of decline into a thriving hub for the raising of capital.

Sectors leading Hong Kong’s IPO boom

Historically dominated by traditional sectors such as finance and banking, Hong Kong’s market has diversified significantly in recent years. Technology, innovation, new consumer brands, and biopharma industries are now key drivers of growth, making it a valuable complement to mainland stock exchanges.

As such, looking forward we can expect the Hong Kong stock market to serve both as a “showcase” and a “testing ground” for Chinese enterprises looking to flex their muscles and make a global impact, reflecting the evolving realities of China’s economy.

The impact on existing market players

As a growing number of leading A-share industry players flood in or plan to enter the Hong Kong stock market, concerns are arising about the potential crowding out of liquidity and valuation for existing local and small- and medium-sized enterprises (SMEs).

If market liquidity is fixed in the short term, that is, no significant new money is likely to flow in, capital allocation becomes a zero-sum game. Even before the recent IPO fervour, the listing of major Chinese internet companies like Tencent, Meituan, and Kuaishou in Hong Kong had already led to a capital flow divergence, with around 20% of listed companies attracting 80% of market resources.

Given investors’ preference for high-quality and established companies with proven value to align with their medium-to long-term holding strategies, capital will naturally flow to these leading firms, potentially marginalising smaller firms.

It will, however, take time to see the real impact.

If Hong Kong solidifies its role as the primary gateway for global investors to access Chinese assets, liquidity pressures will ease as the market expands. In other words, a bigger “cake” will benefit smaller companies as well as bigger ones in the end. They may not get the biggest share, but at least they’ll get a piece. How this ultimately plays out is something investors should watch over time.

Dual listing: Costs and benefits for corporate governance and strategy

For companies seeking dual listing (A+H share), the main cost lies in stricter regulatory compliance. Firms must meet both mainland and Hong Kong regulatory requirements, including those from the HKEX and the Hong Kong Securities and Futures Commission, which significantly increases compliance costs.

On the positive side, dual listing brings a more internationalised corporate governance structure and a more global investor base. This external oversight encourages companies, especially A-share firms, to enhance operational efficiency and better meet international investor expectations.

From a market perspective, if Hong Kong investors can develop a better understanding of the value and fundamentals of Chinese companies, this will in turn drive rationality in the A-share market, therefore positively influencing mainland market behaviour over time.

While there are short-term costs, the long-term benefits of dual listing, including stronger governance, improved efficiency, and better market positioning, are significant for large companies.

For small and mid-sized firms, however, high compliance costs may outweigh the benefits, making dual listing less attractive.

Trade-offs, risks and limitations for investors

For investors, whether international or domestic, I believe the greatest risks in Hong Kong lie not at the company level, but rather at the broader macro level.

There are two main concerns. First, whether China will remain committed to economic growth and market-oriented reforms. This is a key factor shaping investor confidence. Second, the international environment, especially geopolitical uncertainty regarding relations between China and the US, could significantly impact the investment climate more than any specific company issues.

At the corporate level, the companies listed in Hong Kong are already some of China’s top performers. Though operational risks exist, these are standard comparable to those in other global markets.

Conclusion

Hong Kong’s IPO market resurgence is a result of macroeconomic recovery, global capital shifts, institutional innovation, and strategic corporate positioning. While challenges such as liquidity concentration and regulatory costs remain, Hong Kong is poised to serve as a vital international market that demonstrates the strength of China’s new generation of companies and reflects the country’s evolving economic landscape.

Huang Sheng is Professor of Finance, Associate Dean, Director of EMBA Programme, PhD supervisor and Director of CEIBS Research Center for Corporate and Capital Markets at CEIBS.