Hong Kong’s IPO wave: gateway or risk trap for investors? – CFA Institute Enterprising Investor

The Hong Kong market’s IPO reforms, which come into effect this month, will change how deals are priced and who gets access. For investors, this marks a critical shift in market integrity and allocation fairness. The impact is already visible. In the first half of this year, companies listed on the Hong Kong Exchanges and Clearing Limited (HKEX) raised $14 billion (HK$109 billion). Battery maker and technology company CATL’s $4.6 billion offering in mainland China, the world’s largest IPO so far this year, underlines investor appetite for listings in mainland China.

For investors, the rise signals both opportunity and risk: Hong Kong has reasserted itself as the offshore gateway for mainland Chinese companies, but with that dominance comes heavy exposure to the country’s economy.

The scale of the recovery marks a sharp break from the past three years, when global tightening, weak sentiment and geopolitical shocks kept Hong Kong’s stock market subdued. What changed in 2025 was a convergence of push factors within mainland China (deflation, stricter onshore regulations and slowing growth) with pull factors in Hong Kong (reforms and capital flexibility that made the city the natural outlet). Together, these forces explain why mainland Chinese companies have bounced back so strongly, and why Hong Kong’s stock market revival looks different from previous cycles.

Figure 1. HKEX IPO trends

Source: HKEX, SEC. Note: Small differences in decimal values ​​between charts are due to rounding of currency conversions.

A Market Awakens: The Driving Forces Behind HKEX’s 2025 IPO Boom

After three years of market slowdown amid global monetary tightening and geopolitical rifts, Hong Kong’s capital market has witnessed a remarkable rebound. The striking turnaround is driven mainly by private companies in mainland China seeking offshore capital, which accounts for 90% of total fundraising. HKEX stands out as the most preferred listing location for companies in Mainland China, compared to its Mainland counterparts.

Since the economic reforms in mainland China in the late 1920s^e century, three domestic stock exchanges were established: first Shanghai, followed by Shenzhen, and then Beijing. Together, these exchanges became engines of capital formation, allowing state-owned enterprises, private companies, and innovative startups to raise capital on a large scale as the Chinese mainland economy boomed from the 1990s through 2010.

However, the political and economic nature of the market in mainland China, with capital controls and strict regulatory requirements, limits foreign entry. These factors have contributed to HKEX’s appeal as an offshore listing platform and an entry point for foreign investors to gain exposure to mainland China’s capital market.

Figure 2. Comparison between stock exchanges in Greater China

Source: ExpatInvestChina.

Established under British rule and preserved after the 1997 handover under ‘One Country, Two Systems’, Hong Kong SAR retains features that distinguish it from mainland locations. This includes the common law structure, global access and free capital flows. These features continue to make HKEX the natural offshore gateway for mainland Chinese companies.

Push factors from China

The post-COVID slowdown in mainland China, marked by deflation and real estate market challenges, has left private companies under pressure from price wars and shrinking margins. Without state support, many have little choice but to look for foreign capital, a dynamic that is pushing stock market listings toward Hong Kong.

Mainland China is a policy-driven economy. In 2024, the China Securities Regulatory Commission (CSRC) has tightened approvals for IPOs, especially for unprofitable or early-stage companies. As a result, onshore fundraising fell to $9.3 billion across 101 IPOs, an 83% year-over-year decline. In the first half of 2025, mainland exchanges raised just $4.7 billion, less than a third of what companies listed on the HKEX raised in the same period.

Pull factors from Hong Kong

The fundamental appeal of the HKEX over its domestic counterparts lies in its completely open nature, with its currency, the Hong Kong dollar, being a freely convertible currency pegged to the US dollar. The free movement of capital and convertibility into hard currency are essential for any business operating on a global scale. This also applies to early-stage investors and private company founders considering exit strategies.

Hong Kong is considered a special administrative region by mainland China, and the A+H listing model is strongly encouraged. That is, dual listings where a Mainland China company’s shares are traded on both a Mainland China stock exchange (A shares) and the Hong Kong Stock Exchange (H shares). In the first half of this year, 21 of the 44 IPOs were A+H listings, an increase of 110% year on year.

HKEX Structural Reforms

Recent reforms have changed the way Hong Kong companies list and how investors access them. The new Technology Enterprises channel[1] provides a confidential fast track for specialist technology and biotech companies, sectors that are heavily supported in China. A+H listings[2] can now be approved in just 65 days, speeding up delivery. At the same time, HKEX lowered its public float requirement from 15% to 10% and lowered the retail allocation limit from 50% to 35%.

For investors, these changes mean two things: faster deal flow, but also less protection. Large issuers in mainland China can now bring significant offerings to market more quickly while maintaining greater control, benefiting institutional allocation at the expense of retail access. Lower float and tighter retail caps may improve price efficiency in the short term, but in the longer term they increase liquidity and governance concerns. In short, access has improved for large investors, while risks have increased for smaller investors.

What it means for investors

For investors, the boom in IPOs in Hong Kong offers both opportunities and risks. On the plus side, HKEX offers access to mainland China’s most dynamic private companies. On the other hand, the market is highly concentrated: roughly 80% of HKEX’s capitalization is tied to issuers in mainland China, exposing investors to changes in Chinese policies and geopolitical events. Persistent valuation discounts relative to global peers raise further questions about long-term returns. The trade-off is clear: Hong Kong offers a gateway to the growth stories of mainland China, but only for investors willing to accept concentration and volatility as the price of admission.

This is the first in a three-part series. Part II will examine how Hong Kong’s positioning compares to global stock markets, and what that means for long-term capital allocation; Part III will be an advocacy-focused joint piece with CFA Society Hong Kong, analyzing recent reforms, IPO price discovery and open market demands.

References
Hong Kong’s IPO wave roars back: What’s driving the $14 billion surge in the first half
Hong Kong’s ECM landscape in 1 2025

HKEX posts record first-quarter profit amid surge in IPOs and trading volume – Beijing Times

Mainland China and Hong Kong IPO Markets by Mid-Year 2025 – KPMG China

What Hong Kong’s Chinese listing frenzy means for investors | The Street Times

Chinese Belt and Road Investment to Reach Record Highs by 2025, Driven by Energy, Mining and Technology Sectors – Griffith News

PwC Hong Kong: PwC: 2025 is set to be the most active IPO market for Hong Kong in four years; fundraising is expected to be number 1 worldwide

Mainland China IPOs to fall by 2025 amid regulators’ crackdown – News & Statistics – IndexBox

Chinese stock markets compared

[1] Technology Enterprises Channel (TECH): Launched in May 2025 jointly by HKEX and SFC, Technology Enterprises Channel (TECH)designed to support specialty technology companies and biotech companies in streamlining IPO processes.

[2] Accelerated timeframe for eligible A-share listed companies: Announced on October 18, 2024 jointly by HKEX and SFC: Joint statement on an improved timeframe for the application process for new listings