The Hong Kong Stock Exchange's recent surge in initial public offerings (IPOs) has sparked concerns about the performance of these new listings. While the exchange has been a top destination for IPOs globally, with strong momentum in 2025 continuing into the first quarter of 2026, the reality is that many of these offerings are underperforming. Out of 179 listings since January 2025, about half have traded lower over the past three months, contrasting with the benchmark Hang Seng index's mild drop and the FTSE Renaissance Global IPO Index's gains. This trend is even more pronounced in the Stock Connect program, where mainland Chinese investors can directly invest in Hong Kong-listed stocks. Out of 33 stocks included in the program on March 9, over half more than doubled in price between their IPO and the last trading day before inclusion, with some stocks like AI startup Deepexi surging by more than 300%. However, all of these stocks have since dropped by 10% or more, with Deepexi down 51% as of June 3. This performance issue is not lost on Beijing, with state-backed media highlighting concerns over sharp rallies and subsequent declines in some Hong Kong IPOs. The situation is further complicated by the fact that many Hong Kong H shares are already traded as mainland China's A shares, leading to capital retreats to the often cheaper A shares after the stocks have joined the Connect program. This dynamic has led to a focus on short-term performance, with some funds in Hong Kong capitalizing on Connect inclusion to generate additional returns. Despite these challenges, the Hong Kong Stock Exchange remains a popular destination for IPOs, with Goldman Sachs predicting companies will raise about $60 billion this year, nearly double the $36 billion raised in 2025. However, the low fees, weaker fundraising, and intensifying competition mean that the financial sector is under pressure, and the focus on short-term performance is likely to continue. The next tests for the market will be the listings of Knowledge Atlas Technology and MiniMax, both of which are expected to begin trading in Shanghai via the Connect program. These companies, along with other high-profile stocks, will be closely watched to see if they can buck the trend of underperformance and provide a boost to the Hong Kong Stock Exchange's reputation as a top IPO destination.
