Opinion | Where will the funds go for IPO in Hong Kong? What other applications are in the queue? What are the impacts?

1. The recovery of the Hong Kong stock IPO market, is it becoming a trend for mainland companies to list in Hong Kong?

The Hong Kong IPO market may experience a full recovery in 2025. From 2020 to 2024, the number of IPOs on the HKEX showed a gradual downward trend. In 2020, the number of IPOs on the HKEX reached 146, and then the number of IPOs declined to 70 by 2024. As of May 31, 2025, the number of IPOs on the HKEX reached 28, a 7.1-fold increase compared to the same period in 2024, and it is expected that the total number of Hong Kong stock IPOs this year will significantly increase compared to last year.

In addition to the originally planned IPOs, the issuance of H-shares by A-share companies and the return of Chinese concept stocks to the Hong Kong stock market will further boost market enthusiasm. Since 2025, the trend of mainland enterprises listing in Hong Kong has continued to heat up, becoming a striking scene in the Capital Markets. Many A-share listed companies have turned their attention to the Hong Kong Capital Markets, triggering a wave of "southward" listings. Currently, there are already several companies including $CATL (03750.HK)$ 、 $Midea Group Co., Ltd (000333.SZ)$ 、 $HENGRUI PHARMA (01276.HK)$ Among the 26 A-share companies, including leading enterprises, applications for listing have been submitted to HKEX, with 5 companies having completed their listings, setting a historic high. Why has listing in Hong Kong become a new trend this year? The main reasons are convenient policies and systems along with companies' Global Strategy.

Policy support encourages the internationalization of high-quality Chinese assets. On April 12, 2024, the State Council released several opinions on strengthening regulation to prevent risks and promote high-quality development of the Capital Markets, stating the need to expand and optimize the cross-border connectivity mechanism of the capital markets. Based on this, the China Securities Regulatory Commission promptly introduced five measures to further expand and optimize the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism, helping Hong Kong consolidate and enhance its status as an international financial center, thereby jointly promoting the coordinated development of the capital markets in the two regions. The fifth measure supports leading enterprises from the mainland to list in Hong Kong. HKEX has also actively responded by launching a "Technology Enterprise Fast Track" that opens a quick review channel for qualifying A-share companies.

A relaxed policy environment provides a flexible listing mechanism and high listing efficiency for companies going public in Hong Kong. HKEX adheres to a disclosure-based listing approval mechanism with clear and transparent listing rules and efficient, convenient processes. For mainland enterprises seeking to list, the approval time at HKEX is relatively controllable, provided that they meet the requirements of the Listing Rules and obtain a filing notification for overseas issuance and listing from the China Securities Regulatory Commission. In October 2024, the Hong Kong Securities and Futures Commission and HKEX announced that they would further optimize the timeline for the approval process of new listing applications to make the process clearer and more manageable. For companies already listed on A-shares, specific A-share companies that meet certain conditions can enter a fast-track approval process at HKEX.

The company's own Global Strategy and international development needs. From a strategic perspective, leading companies listing in Hong Kong are often accompanied by the demand for international development. By utilizing Hong Kong as an international financial gateway, companies can more easily connect with the global Industry Chain, attract overseas partners, and enhance their brand influence in the international market, laying a solid foundation for future multinational operations. Domestic companies listed this year, such as Contemporary Amperex Technology, Chifeng Jilong Gold Mining, and JunDa Co., have all clearly stated that they intend to use the raised funds for overseas factory construction or business expansion, which helps Chinese high-quality enterprises go global and accelerates the realization of their international strategies.

2. How does the acceleration of HK stock IPOs affect the market?

The acceleration of HK stock IPOs has ignited trading enthusiasm. Since the beginning of the year, various volume and price indicators indicate positive sentiment in the HK stock market. In terms of volume, from 2025 to date, the daily average volume of the Hang Seng Index has reached 240.916 billion HKD, while the average daily volume for the whole year of 2024 was only 131.775 billion HKD, which is higher than the daily average turnover of 199.005 billion HKD post-924, indicating that market activity remains at a high level; in terms of Turnover Ratio, the daily average Turnover Ratio from 2025 to date has reached 38.2%, while last year's daily average Turnover Ratio was 30.0%.

In terms of returns, since the beginning of the year, the Hang Seng Index has risen by 19.82%, and the Hang Seng TECH Index has increased by 19.09%, performing exceptionally well among global stock markets. Correspondingly, the valuation of HK stocks has significantly improved, with the PE of the Hang Seng TECH Index (ttm) rising to 10.49 times, while its valuation has receded from its peak in February, primarily due to the cyclical retreat of the AI narrative. In terms of Capital Trend, since the beginning of 2025, there has been a net inflow of foreign capital overall, with passive funds becoming the largest buyers. Southbound funds have also maintained a net inflow, although the inflow amount has diminished since May.

This year, companies listed on the A-shares market have become a significant contributor to IPOs in Hong Kong. How will A-share companies listing in Hong Kong affect A/H Stocks?

In terms of valuation, the PE (ttm) of companies listed on both markets (after listing on HKEX) is showing a downward trend, with an average PE (ttm) of 35.34 times on the first day of listing, which decreases to 33.88 times seven trading days later. As of June 5, 2025, the average PE (ttm) of these companies has dropped to 18.52 times.

Regarding the AH Stocks premium, historically all A-share companies listed on HKEX have seen their AH Stocks premium gradually converge after listing, with the average premium rate reducing from 39.50% to 35.72% after 30 trading days. The convergence of the AH Stocks premium may be related to the significant differences in asset preferences and pricing models between domestic and foreign investors. Foreign capital generally gives a higher valuation premium for quality companies, and these high-quality manufacturing enterprises in the A-shares market align better with foreign investors' 'aesthetic', attracting global long-term capital flows after listing in Hong Kong, which in turn boosts the valuation of Hong Kong stocks.

Correspondingly, the price performance of A-shares and Hong Kong stocks is diverging. On one hand, H-share listings can drive A-shares up; the average increase in A-shares for these companies within 30 trading days after listing is about 2.61%. These newly listed stocks are often high-quality scarce assets that attract subscriptions from international investors and various funds, making it easier to trigger market speculation, leading to significant capital inflows that push stock prices up. On the other hand, in the seven trading days after listing, the average increase in A-shares is -0.33%, whereas the average increase in Hong Kong stocks is 1.89%. The average increase in A-shares turns positive (2.50%) within 30 trading days but is significantly lower than the gain in Hong Kong stocks (6.78%).

III. Global Capital Flows This Week

(I) A/H Stocks Market

1. Connectivity in AH stocks

The daily trading volume of northbound capital decreased this week. For the period from June 2 to June 6, the total trading amount of northbound capital was 0.56 trillion yuan, with an average daily trading amount of 140.2 billion yuan, a decrease of 1.67 billion yuan compared to last week's average daily trading amount.

This week, the southbound funds maintained a net inflow. For the week (June 2 - June 6), the net inflow of southbound funds was 0.136 billion HKD, down from a net inflow of 0.28 billion HKD last week. At the individual stock level, the stocks with the highest net buy amounts from southbound funds include MEITUAN-W (net buy of 0.086 billion HKD), BYD (net buy of 0.038 billion HKD), and China Construction Bank Corporation (net buy of 0.03 billion HKD); the stocks with the highest net sell amounts include TENCENT (net sell of 0.058 billion HKD) and XIAOMI-W (net sell of 0.047 billion HKD).

2. In terms of foreign capital flow: active foreign capital outflow has slowed, passive foreign capital has turned into inflow.

In A-shares, the growth rate of active foreign capital outflow has increased, and passive foreign capital has also turned into outflow. As of this Wednesday (May 29 - June 4), active foreign capital outflow from A-shares was 0.23 billion USD (a growth rate compared to a 0.08 billion USD outflow last week), and passive foreign capital outflow was 0.24 billion USD (a reversal from a 0.41 billion USD inflow last week); for H-shares, active foreign capital outflow was 0.004 billion USD, slightly increasing compared to last week, and passive foreign capital outflow was 0.007 billion USD (a reversal from a 0.013 billion USD inflow last week).

(2) Important Overseas Markets

1. Capital flow in U.S. stocks.

Both active and passive funds in the U.S. market have significantly flowed out. As of this Friday (June 2 - June 6), active funds flowed out 2.09 billion USD, with an increase of 1.87 billion USD compared to last week's outflow; passive funds also saw an outflow of 5.38 billion USD, increasing by 3.21 billion USD from last week's outflow.

2. Capital flow in other important markets: There was a significant inflow of funds into Japan, and the inflow of funds into developed European markets has expanded.

This week, there was a significant inflow of funds into the Japanese market, and the inflow scale into developed European markets has expanded. Specifically, the Japanese market saw an inflow of 4.27 billion USD, compared to an outflow of 11.77 billion USD last week; the developed European markets saw an inflow of 2.61 billion USD this week, compared to an inflow of 0.97 billion USD last week.

(3) Other Major Assets

This week, Gold saw a net inflow of funds while the Capital Trend in the Cryptos Sector saw an outflow. As of Wednesday this week (May 29 to June 4), there was a net inflow of 1.91 billion USD into Gold, an increase from 1.79 billion USD last week. The weekly net outflow for Crypto Assets was 0.21 billion USD, reversing from an inflow of 2.61 billion USD last week.

4. Risk Warning

There remains a considerable level of uncertainty regarding tariff negotiations among all parties, and other economies may change their trade policies towards China; demand from the United States and other overseas economies may further deteriorate; domestic economic growth and stabilization policies may fall short of expectations.

Editor/Somer