Despite Hong Kong being the world’s leading IPO market by funds raised, it faces a significant challenge with many newly listed stocks underperforming after their debut. Particularly, companies integrated into the Stock Connect program have seen initial surges followed by sharp declines, leading to concerns from Beijing and a shift in investor preference towards mainland Chinese equities.
BEIJING — Hong Kong has cemented its status as a global powerhouse for initial public offerings, frequently outranking financial titans like Wall Street. However, this impressive volume is overshadowed by a growing concern: a significant number of these newly listed stocks are failing to maintain their value, often declining sharply after their market debut.
Last year, the Hong Kong exchange led the world in funds raised through IPOs, surpassing both the New York Stock Exchange and Nasdaq, a trend that continued robustly into the first quarter of this year, according to KPMG. The exchange's official website shows an astonishing pipeline of over 600 companies eagerly awaiting their listing opportunity.
Despite the high volume, the performance of Hong Kong IPOs has been underwhelming. Data from Chinese financial-data firm Wind Information reveals that nearly half of the 179 listings since January 2025 have traded lower over the past three months. This stands in stark contrast to a modest dip for the benchmark Hang Seng index and gains exceeding 10% for the FTSE Renaissance Global IPO Index over the same period.
The situation is particularly pronounced for stocks included in the Stock Connect program, which enables direct investment from mainland China. Of the 33 Hong Kong-listed stocks that joined Connect on March 9, over half had more than doubled in price between their IPO and the day before their inclusion. Eight of these, including AI startup Deepexi, saw their values surge by over 300% during this pre-inclusion period. Worryingly, all eight have since experienced declines of 10% or more, with Deepexi's stock down a dramatic 51% as of June 3.
This pattern of rapid appreciation followed by significant declines has not gone unnoticed by authorities. The state-backed Securities Times in Beijing recently highlighted concerns over these volatile price movements, signaling a watchful eye on the market's stability.
Leonid Mironov, a portfolio manager at Gavekal, suggests that capital often retreats to the typically cheaper mainland A shares once stocks become accessible through the Connect program, explaining some of the post-inclusion drops. Ding Wenjie, investment strategist for global capital investment at China Asset Management Co., noted that his firm has observed funds in Hong Kong strategically leveraging Connect inclusion to generate additional returns.
While Goldman Sachs projected Hong Kong listings to raise approximately $60 billion this year, nearly doubling the $36 billion from 2025, the investment firm recently downgraded Hong Kong H shares, preferring mainland Chinese A shares for greater exposure to artificial intelligence hardware opportunities.
Benjamin Cavender, managing director at China Market Research Group, pointed out that factors like low fees, weaker fundraising environments, and escalating competition are exerting pressure on China's financial sector, likely pushing for a focus on short-term performance. In response to inquiries, HKEX stated that share price performance is influenced by a diverse range of market factors.
The market anticipates further tests with upcoming listings: Knowledge Atlas Technology, the company behind the AI model Zhipu, is slated to begin trading in Shanghai via Connect on Monday. Fellow AI firm MiniMax is expected to follow later this summer. Both companies initially listed in Hong Kong in January, setting the stage for crucial observations of post-Connect performance.
