(Bloomberg) — A wave of listings by Chinese companies is expected to reinvigorate trading activity in Hong Kong, with optimism growing that a robust pipeline of debuts will drive the broader stock market higher.
First-time share sales in Hong Kong have raised HK$77 billion ($9.9 billion) this year through May, the most for the period since 2021, buoyed by a blockbuster offering by battery giant Contemporary Amperex Technology Co.
The boom looks set to continue as companies that represent China’s industrial ambitions and rising technological capabilities — such as chipmaker Will Semiconductor Co. and luxury carmaker Seres Group Co. — prepare to debut on the Hong Kong exchange.
While there is yet to be a meaningful pickup in turnover, the listings are a welcome development for a market that had been bogged down in recent years by low liquidity and a dearth of prominent new entrants to attract global capital. The Hang Seng Index remains 25% below its 2021 peak despite a 16% gain this year.
“The fundraising rush will be a boon for liquidity and finally make Hong Kong ‘China’s Nasdaq,’ more so than any of the onshore growth boards, given the quality of the listings,” said Chen Da, founder of Dante Research. The arrival of high-profile Chinese companies, and the trading activity that brings, may revitalize stocks that had fallen into obscurity due to low turnover in the broader market, he said.
Hong Kong has long been a gateway for global investors seeking exposure to mainland Chinese companies, which currently make up 70% of the Hang Seng Index’s weighting. While this role has also left the city’s stocks vulnerable to China-US tensions, strong performance by recent entrants shows investors believe the rewards of owning a slice of China’s new-economy stocks outweigh the risks of volatility.
Share prices for bubble tea makers Mixue Group and Guming Holdings Ltd., and toy manufacturer Bloks Group Ltd., have more than doubled since their Hong Kong debuts this year.
The offerings are “fundamentally reshaping the DNA of the market, representing a strategic upgrade for the city’s market,” said Yang Ruyi, fund manager at Shanghai Prospect Investment Management Co. “Hong Kong is re-branding from merely a China offshore market into a globally-watched benchmark pricing the new economy.”
Tech stocks and those embodying new consumption trends could make up 50% of the weightings of the exchange’s constituents in the coming years, she expected.
To some market watchers, the burst of activity is evoking memories of the IPO boom in the early 2000s that laid the groundwork for a near-300% rally in the Hang Seng Index over the four years through 2007. Zeng Wenkai, a fund manager at Shengqi Asset Management, draws parallels to the momentum that followed Tencent Holdings Ltd.’s 2004 debut, and sees valuations increasing by 20% across the board over the next year.
In another potential boost, fast-fashion retailer Shein Group Ltd. is considering switching its planned initial public offering to Hong Kong from London. The bullish sentiment is evident in the gains in Hong Kong Exchanges & Clearing Ltd., whose stock has rallied 36% this year.
IPO proceeds could reach HK$160 billion — or $20 billion — this year and put Hong Kong back at the top perch globally, according to estimates by CGS International. Bing Yuan, a fund manager at Edmond de Rothschild Asset Management, said stellar listings by the likes of CATL and Jiangsu Hengrui Pharmaceuticals Co. suggest companies with global footprints and strong governance standards tend to attract more interest from international investors.
Despite the budding optimism, a meaningful boost to liquidity and a shift in global funds’ perception of Hong Kong as an attractive destination may take time to materialize. There is also the risk of new listings diverting demand away from existing stocks and somewhat offsetting the boost to the broader market.
Read: Chinese Firms Go on Fundraising Spree Amid Rush of Easy Money
There’s little doubt though that a broader revaluation is underway. The Hang Seng Index is among Asia’s best performers this year, thanks to an earlier rally driven by DeepSeek’s artificial intelligence breakthrough and Beijing’s economic support. The Hong Kong benchmark now trades at 10.3 times forward earnings estimates, above a three-year average ratio at around nine.
“The inclusion of H-share listings of A-share companies in major MSCI indexes could serve as a meaningful catalyst for both passive and active capital flows into Hong Kong,” said Gary Tan, portfolio manager at Allspring Global Investments. “This is particularly significant for sectors such as tech and consumer, which remain underrepresented in Hong Kong relative to their growing importance in China’s economic future.”
–With assistance from Abhishek Vishnoi and Dave Sebastian.
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