• Hong Kong stock exchange saw new listings jump for the first time after three consecutive years of declines, in terms of deal values.
• Despite some "signs of life," only when "we see continued improvement in the onshore economy and geopolitical tensions continue to soften" can one expect a further pickup in Hong Kong's IPO activities, said Andy Maynard, managing director and head of equities at China Renaissance.

Hong Kong recorded a notable pickup in listing activities this year, as more Chinese companies turned to the city to raise capital and investors grew optimistic after Beijing pledged to support the offshore market.

The Hong Kong stock exchange saw new listings jump for the first time after three consecutive years of declines, in terms of deal values, according to data compiled by Dealogic. That included initial public offerings and additional follow-on share sales.

The city's bourse raised a combined $10.65 billion across 63 deals this year, marking a significant increase of more than 80% compared to the $5.89 billion raised across 67 in 2023 — which was the lowest since 2001, according to Dealogic. 

As another sign that companies and investors are regaining confidence in Hong Kong's market, the average deal size nearly doubled from the previous year to $169 million.

The number of firms seeking public flotations in Hong Kong started picking up in the second half of this year, as the Chinese securities regulator in April pledged to support the Hong Kong market and facilitate more IPOs from leading mainland companies.

Beijing's ramped-up stimulus package has further fueled companies' interest in raising capital in the offshore city and lured back some foreign capital funds, experts said.

Looking at IPOs alone, Hong Kong is set to rank fourth globally in terms of funds raised this year, according to KPMG, trailing India and the U.S. stock exchanges.

"There are a lot of pent-up demand for capital raising" since 2022, when the city's economy sought to shake off a pandemic-induced slowdown, Andy Maynard, managing director and head of equities at China Renaissance said in an email.

Despite some "signs of life," Maynard cautioned that only when "we see continued improvement in the onshore economy and geopolitical tensions continue to soften" can one expect a further pickup in Hong Kong's IPO activities.

'Signs of life'

For years, listing activity in the Asian financial hub had declined as geopolitical tensions and higher interest rates globally dampened investors appetite to buy into Hong Kong and Chinese equity capital market deals.

China's economic downturn and a stubborn housing market crisis also raised worries among issuers and investors when it came to companies valuations.

Investor sentiment has improved this year, especially toward sectors which would benefit from the policy support, such as consumption-related businesses, said Qing Wang, chairman and chief strategist at Shanghai Chongyang Investment Management. 

Midea Group, which sells air conditioners, washing machines, elevators and other consumer products, in September clinched the city's largest listing since early 2021. Its shares listed in Hong Kong have jumped over 36% from its offer price, as investors remain hopeful of its position to benefit from Beijing's "trade-in program," aimed at encouraging consumers and businesses to upgrade existing appliances and equipment.

There were 90 IPO applications pending listing or under processing as of Nov. 29 according to the exchange's website.

While the city may see a more active IPO pipeline in 2025, it is likely to be a "gradual recovery" rather than a "V-shaped" one, said John Lee, vice chairman and co-head of Asia country coverage at UBS global banking Asia.

So far this year, mainland investors have bought $96.4 billion worth of Hong Kong stocks, surpassing last year's total of $42 billion and heading towards the biggest year since a $87 billion buying spree in 2020, according to data from Goldman Sachs.

"There is also a return of foreign long-only [funds] to China [and] Hong Kong equities, though the pace is gradual," said Perris Lee, head of APAC equity capital market at Ion Analytics.

'Not a Santa rally'

Not all new listed stocks have traded well. Chinese autonomous driving firm Horizon Robotics and bottled water maker China Resources Beverage —the two largest IPO deals in the city this year — saw their shares decline by 12% and 11%, respectively, as of Wednesday from offer price levels.

Investors need to see "concrete evidence of stimulus policy effectiveness", Shanghai Chongyang's Wang said. He expects some improvement in sentiment early into the second quarter next year when the public companies start releasing earnings.

The benchmark Hang Seng Index is heading for its first annual gain after four straight years of declines, surging over 16% so far this year.

That said, the rally, fueled by Beijing's massive stimulus package in late September has lost some of its momentum.

Looking ahead, China Renaissance's Maynard said that while the Hong Kong stock market may have turned the corner, he did not see "any prospect of a Santa rally." The market remained "trapped and range-bound" as Beijing's stimulus announcements since September have underwhelmed.