Hong Kong’s IPO boom is developing a performance problem

Hong Kong has long been a powerhouse for initial public offerings (IPOs), leading the global market in funds raised last year. According to KPMG, the Hong Kong Stock Exchange surpassed the New York Stock Exchange and Nasdaq in IPO funds, with momentum continuing into the first quarter of this year. With over 600 companies waiting to list on the exchange, Hong Kong remains a hotspot for new listings.

Despite its success in raising funds, Hong Kong is facing a concerning trend of underperforming IPOs. Out of 179 listings since January 2025, about half have seen their stock prices decline over the past three months. This is in stark contrast to the benchmark Hang Seng index, which experienced only a mild drop during the same period. Additionally, the FTSE Renaissance Global IPO Index saw gains of over 10% over the same timeframe.

The situation is even more pronounced for companies in the Stock Connect program, which allows mainland Chinese investors to trade in Hong Kong-listed stocks. Out of 33 stocks that joined the program on March 9, more than half saw their prices more than double between their IPO and inclusion in the Connect. However, many of these stocks have since experienced significant declines, with some dropping by over 50%.

Concerns over these sharp rallies and subsequent declines have caught the attention of Beijing. State-backed Securities Times recently highlighted the issue, pointing to the capital retreat from Hong Kong H shares to mainland China’s A shares after inclusion in the Connect program. Some funds in Hong Kong have been exploiting the Connect inclusion to generate additional returns, further exacerbating the volatility in the market.

Looking ahead, Goldman Sachs predicts that companies will raise around $60 billion in Hong Kong listings this year, nearly double the amount raised in 2025. The investment firm has downgraded Hong Kong H shares in favor of mainland Chinese A shares, citing greater exposure to artificial intelligence hardware plays. The pressure on parts of China’s financial sector has led to a focus on short-term performance, according to experts.

As the market continues to evolve, upcoming IPOs like Knowledge Atlas Technology and MiniMax are set to test the waters. Both companies, known for their AI models, are expected to begin trading in Shanghai via the Connect, with MiniMax likely to join later this summer. These developments will be closely watched as Hong Kong navigates the challenges of its IPO market.