HKEX strong performance: More than 70 companies expected to list in 2025

Key Concepts:

• Hong Kong IPO Market Resurgence
• Dual Primary Listings (A+H Shares)
• Stock Connect Program (Southbound Trading)
• Valuation Gap (A Shares vs. H Shares)
• International Ambitions of Chinese Companies
• Hong Kong Dollar Peg to US Dollar

Hong Kong IPO Market Resurgence

• After a period of stagnation, Hong Kong's IPO market is experiencing a strong rebound.
• Investor demand is surging, driven by blockbuster deals like CL.
• Hong Kong aims to reclaim its position as a leading global IPO hub.
• Companies have raised $13 billion so far this year, with projections reaching $25-$35 billion by year-end (according to Deloitte).

Driving Forces Behind the IPO Pipeline

• Dual Primary Listings (A+H Shares): A significant portion of listing applicants are companies already listed on mainland Chinese markets seeking a second listing in Hong Kong. There are close to 60 of them in the pipeline.
  • Reasoning:
    • International ambitions: Hong Kong provides an offshore fundraising platform.
    • Employee remuneration: Hong Kong-listed stock can be used as compensation for global employees.
    • Acquisition currency: Hong Kong-listed stock can facilitate international acquisitions.
• Return of International Investor Interest: Increased global interest in opportunities in mainland China and Asia is benefiting the Hong Kong market.

CL Case Study: A Catalyst for Investor Attention

• CL's $4.6 billion IPO (later $5.3 billion after exercising the green shoe option) served as a catalyst, drawing investor attention back to top-tier Chinese industries listing in Hong Kong.
• CL's dual primary listing (A+H shares) exemplifies the trend of mainland companies seeking international expansion.
• A significant portion of the funds raised will be used to build a factory in Hungary, illustrating the "going out" phenomenon.
• CL's H share price (Hong Kong-listed) is trading at a premium to its A share price (mainland-listed), indicating strong international investor interest.

Addressing the Valuation Gap Between A Shares and H Shares

• A 30-40% valuation gap exists between A shares and H shares, although it is narrowing.
• The primary reason for the discrepancy is that the two pools of shares are not fungible, leading to different price discovery mechanisms.
• The speaker is encouraged by the recent elevation of A share prices.

Hong Kong as a Credible Long-Term Partner

• Hong Kong aims to be a complementary listing venue, regardless of whether a company's primary listing is in mainland China, the US, or elsewhere.
• Stock Connect Program: A unique feature of the Hong Kong market is the Stock Connect program, which facilitates southbound trading (mainland investors buying Hong Kong-listed shares).
  • Started in 2014, connecting Hong Kong with Shanghai, and extended to Shenzhen in 2016.
  • This mechanism allows companies listing in Hong Kong, including international companies, to benefit from access to mainland Chinese investors.
  • No other exchange can offer this.

Monetary Dislocation and Hong Kong Dollar Peg

• Overnight interest rates in Hong Kong have fallen significantly, nearing zero, despite the Hong Kong dollar's peg to the US dollar.
• Possible explanations include high demand for the Hong Kong dollar, potentially driven by the vibrant IPO market.
• The market is expected to adjust and find a new equilibrium.
• The Hong Kong Monetary Authority (HKMA) can intervene to make necessary adjustments due to the peg.

Conclusion

Hong Kong's IPO market is experiencing a resurgence driven by dual primary listings, international investor interest, and unique mechanisms like the Stock Connect program. While challenges such as the valuation gap between A shares and H shares and monetary dislocations exist, the market is adapting, and Hong Kong is positioning itself as a key hub for companies seeking international expansion and access to global investors.