What investment opportunities does the boom in Hong Kong stock listings bring?

Author: Huang Fan

This year, 42 companies have successfully gone public in the Hong Kong stock market, raising a total of over HKD 105.5 billion. The repeated IPO bell-ringing ceremonies are sending one company after another into the overseas capital market. How should this be interpreted?

As we enter 2025, the Hong Kong stock market, which has been silent for four years, seems to be welcoming a long-awaited "spring tide." Since the beginning of the year, waves of IPOs have been rolling in one after another, like waves continuously rising on the surface of the capital market.

From January to June, 42 companies have successfully listed in the Hong Kong stock market, raising a total of over 105.5 billion Hong Kong dollars. The ringing of the IPO bell time and again sends one enterprise after another into the overseas capital market. Meanwhile, the enthusiasm of cornerstone investors from around the world is unprecedented; they not only bring in capital but also market confidence. Sovereign funds from the Middle East and long-term funds from Southeast Asia have also flooded in, forming streams of "capital warmth."

1. What are the reasons for the current surge in the Hong Kong stock market?

The latest reform measures by the Hong Kong Stock Exchange have brought policy dividends as the main reason, from optimizing listing thresholds to piloting a renminbi pricing mechanism, and compressing approval cycles. Each policy acts like opening a new "sluice gate," allowing the flow of IPOs to move more quickly towards the Hong Kong stock market.

In recent years, the Hong Kong Stock Exchange has continued to reform its listing system, optimizing the admission standards for dual primary listings and secondary listings, and opening a fast-track "green channel" for high market capitalization A-share companies. As a result, domestic A-share listed companies are increasingly active in pursuing secondary listings in the Hong Kong stock market (including secondary listings and dual primary listings), particularly since 2025. Leading A-share companies such as Contemporary Amperex Technology Co., Limited, Hengrui Medicine, and Haitian Flavoring & Food Co., Ltd. have chosen to conduct secondary listings in the Hong Kong stock market. Listing in Hong Kong not only expands their international financing channels but also helps enhance their global brand influence.

Taking CATL as an example, it was listed on the main board of the Hong Kong Stock Exchange on May 20, 2025, attracting 23 cornerstone investors including the Kuwait Investment Authority, with IPO fundraising reaching HKD 30.718 billion, making it one of the largest IPOs globally this year. On the first day of trading, CATL's stock price opened 12.55% higher, with a market capitalization of HKD 1.34 trillion. The company's move aims to establish an international financing platform to support its overseas business expansion.

At the same time, against the backdrop of tightening regulations and rising delisting risks in the US stock market, the Hong Kong stock market has also become a key choice for Chinese concept stocks to return. An increasing number of companies are choosing to "fly back" to the Hong Kong stock market to complete their secondary listings, akin to "migratory birds returning home." They bring mature businesses and clear profit models, injecting stable power into the Hong Kong stock market.

In fact, the impact of different types of enterprises going public for a second time in Hong Kong shows obvious industry differentiation characteristics:

1. New Energy and High-end Manufacturing

The secondary listing not only enhances the international financing capabilities of leading companies but also accelerates the capacity expansion process. For example, most of the funds raised by CATL will be used for the layout of overseas battery factories. Technology-intensive enterprises find it easier to attract international industry chain partners through the Hong Kong stock platform, gaining opportunities for cross-border mergers and acquisitions and technological cooperation. In addition, the Hong Kong stock market has a relatively relaxed valuation for growth industries, with the average price-to-earnings ratio of the new energy sector in 2025 being 15%-20% higher than that of A-shares.

2. Biopharmaceuticals

Hong Kong stock financing is beneficial for the internationalization of enterprise research and development and overseas mergers and acquisitions, as it can supplement the liquidity shortage of A-shares affected by policies. The average fundraising amount for Hong Kong stock pharmaceutical IPOs in 2025 is 30% higher than that of A-shares. Although Hong Kong stock investors have limited tolerance for unprofitable innovative drug companies, and some companies experience a "price drop" on their IPO debut, it does not prevent these companies from successfully listing on the Hong Kong stock exchange.

3. Technology and the Internet

Secondary listing in Hong Kong has become a mainstream choice for Chinese concept stocks in the US stock market to avoid delisting risks while retaining the ability to raise funds in USD. Internet companies can leverage the Hong Kong stock platform to expand into emerging markets such as Southeast Asia. Although the liquidity of the tech sector in Hong Kong is lower than that of the US stock market, with an average daily trading volume only 1/5 that of the US, it has achieved the main goal of "returning."

4. Consumption and Retail

Listing on the Hong Kong stock market helps in brand internationalization, enhances overseas visibility, and supports cross-border mergers and acquisitions as well as global channel development. International capital favors the theme of China's consumption upgrade, with foreign ownership in Hong Kong's consumer enterprises reaching as high as 42% by 2025. The demand from international investors for ESG ratings and high dividend yields has also promoted the continuous self-improvement of these domestic enterprises.

5. Finance and Real Estate

The financial industry benefits from the low financing costs and stable valuations of Hong Kong stocks. Compared to A-shares, the average financing cost for Hong Kong stocks is 0.8% lower. However, mainland real estate companies face significant pressure when financing in Hong Kong, as the average price-to-book ratio of mainland real estate stocks in Hong Kong is only 0.3 times in 2025. Although it is difficult to achieve efficient refinancing, it still retains a window for listing.

Clearly, overall, whether for the Hong Kong stock market or for domestic companies going public in Hong Kong, the recent spring tide in the Hong Kong stock market has brought mostly opportunities. But what about for the vast number of investors?

2. What opportunities does the warm trend of Hong Kong stocks bring to domestic investors?

Looking ahead to the second half of the year, it is expected that the IPOs in the Hong Kong stock market will continue to thrive amid a surge of activity, with AI chips, biomedicine, and enterprises related to the "Belt and Road" initiative likely to become the new "trendsetters." As policies continue to optimize and domestic funds keep flowing south, the Hong Kong stock market is ushering in a "golden era." However, how should domestic investors seize this opportunity?

1. Is investing in Hong Kong IPOs a guaranteed profit?

When it comes to the IPO boom, the first thing domestic investors think of is definitely participating in new listings in the Hong Kong stock market. For a long time, under the guardianship of the issuance mechanism in China, participating in new listings in the A-share market has been synonymous with "guaranteed profits with no losses." It's extremely difficult to obtain a subscription for new shares, with the winning rate typically around one in ten thousand. Moreover, the A-share market is still dominated by retail investors, and the trend of speculating on new shares is one of the "fine traditions" of the A-share market. According to statistics from Eastmoney, the average increase in stock prices on the first day of listing for new shares in the past five years is about 120%. Lucky investors who win new shares really do make a profit just by buying them.

However, the Hong Kong stock market is different because there are no regulations on the IPO issuance rhythm, nor is there official guidance on the issue price. As a result, new stock issuances follow the market, and the issue price is basically aligned with the trading price in the secondary market. There are also no limits on price fluctuations, and the whole market's funding participation is mainly led by institutions. Therefore, according to data from the Hong Kong Stock Exchange, the average first-day gain of new stocks listed in the past five years was only 2.1%, while the rate of falling below issue price was about 35%.

If investors participate in Hong Kong stock IPOs actively and blindly with the mindset of "guaranteed profits from new shares" established in the A-share market, then ultimately losing money is not a small probability event.

2. Arbitrage the premium of A/H?

According to data from Dongfang Caifu Wang, overall, 80% of the companies that have listed for a second time on the Hong Kong stock market have share prices lower than those on the A-shares, with an average discount rate of 15-20%. Industries such as semiconductors and brokerages show even more significant discounts, reflecting differences in liquidity and investor structure between A-shares and Hong Kong stocks. Many investors immediately think of selling A-shares and buying the same H-shares. In today's environment where interconnection trading between the Hong Kong stock market and the Shanghai-Shenzhen A-shares is already established, such operations seem to guarantee arbitrage.

However, historical experiences ruthlessly tell us that this path is not feasible. Please see the following data:

Data source: East Money Information

Before the free convertibility of capital between the Renminbi and the Hong Kong dollar can be realized, the price difference between A-shares and H-shares will continue to exist for a long time. From the above chart, today, ten years after the opening of northbound and southbound trading between Hong Kong stocks and the Shanghai and Shenzhen markets, the premium between A-shares and H-shares has not only not narrowed, but the overall trend is expanding. At the beginning of 2014, the overall stock prices of A-shares and H-shares were quite similar, but afterwards, the premium of A-shares relative to H-shares gradually widened, reaching a peak of 160% at the beginning of 2024 (A-shares are 60% more expensive than Hong Kong stocks). Many international investment banks and private banks launched strategies to arbitrage the price differences between the two markets based on the opening of Hong Kong and A-shares, but they have long since failed.

Looking ahead to the longer-term future, how should mainland investors seize investment opportunities in Hong Kong stocks?

I believe that the fundamental principle is: high cost-performance is the hard truth!

The following is a list of companies with the largest price difference between A and H shares, where the A share price of the company with the largest difference is about three times that of the H share.

Data source: Eastmoney

Clearly, the A-shares currently assign a very high valuation to the policies and benefits of the Sci-Tech Innovation Board and the narrative of domestic substitution. At the same time, they also show a high tolerance for loss-making and non-profitable companies, and due to the adherence to the "glorious tradition" of speculating on new stocks, small caps, and concepts, they grant high valuations to related companies. However, ordinary investors who have long participated in the speculation of these A-shares rarely emerge as winners. Investors in the Hong Kong stock market are also not too enthusiastic about the pricing characteristics of such A-shares.

Hong Kong stocks are primarily participated in by institutional investors, with funds coming from all over the world. They generally prefer large companies that have real profitability, good development prospects, and are leaders in their respective industries.

However, the premium of A-shares over H-shares has significantly narrowed recently, mainly due to the increasing proportion of southbound capital in the Hong Kong stock market, slowly realizing the grand statement made by domestic analysts five years ago to "cross the Hong Kong River and regain pricing power." The style of Hong Kong stocks is becoming more like A-shares; moreover, as the actual interest rates of the RMB in the domestic market gradually decline, institutional funds (such as insurance funds) that were primarily allocated to fixed-income bonds need to find investment products that can provide high dividends every year as alternatives. As a result, mainland bank stocks listed in Hong Kong, which offer stable annual dividends and are clearly cheaper than A-shares, have become the preferred choice for these institutional funds to replace bond allocations. Therefore, we have seen mainland bank stocks continuously leading the Hong Kong stock market to strengthen over the past year.

Data source: Dongfang Caifu Wang

From the table above, it can be seen that the Hong Kong stocks and A-shares that show price similarity are domestic companies in the industrial, consumer, pharmaceutical sectors, as well as hard technology companies. These companies operate steadily, have large market capitalizations, substantial profits, and generous dividends. There are even a few instances where H-shares are priced higher than A-shares, which is an "anomalous phenomenon." For such companies, if there is a scenario where the price of H-shares is significantly lower than that of A-shares, it presents a good opportunity for domestic investors to participate long-term with the goal of obtaining dividends.

Overall, the current valuation level of H-shares is still about 30% lower than that of A-shares. As the Hong Kong Stock Exchange continues to optimize listing rules and expand the scope of the Stock Connect, it is expected that more leading A-share enterprises (especially in new energy, pharmaceuticals, hard technology, etc.) will accelerate their listings in Hong Kong, making the Hong Kong stock market better represent the strength of the Chinese economy and providing investors with more high-value, cost-effective investment opportunities in Hong Kong stocks.