Recently, several companies, including Horizon Robotics, Huolala, BenQ Hospital, and Oki Technology, have submitted applications for public offerings in Hong Kong. Meanwhile, Taimei Medical and Rongli Construction have completed their applications and are awaiting listing, with both expecting subscriptions to exceed one hundred times. Qiniu Smart is still in the application phase, with its offer window open from September 30 to October 10, coinciding with the national holiday. Carrot has successfully completed its listing, enjoying a remarkable 58.30% rise on its first trading day, with a staggering turnover rate of 139%.

This surge of activity indicates a revitalization of the Hong Kong IPO market, catalyzing optimism among investors after a relatively quiet phase. It reflects not just market engagement, but also a burgeoning confidence among companies regarding future growth prospects. The previous lull in the Hong Kong IPO landscape seems to be fading, as companies actively seek to capitalize on the current market dynamics.

Analysts believe this shift can be attributed to favorable policy shifts, environmental adjustments within the market, and a resurgence in investor sentiment. However, the absence of large-scale IPOs remains a concern, as liquidity issues continue to loom over the market.

With the global economy showing signs of recovery, companies are finding their operational conditions improving. This breeds a sense of optimism regarding future expansion, prompting many to pursue IPOs as a strategic means of fundraising to scale operations. The current IPO frenzy during the national holiday in Hong Kong represents a manifestation of economic revival within the capital markets. Statistics reveal a busy period from September 29 to October 5, featuring one new listing, one company in the IPO rush, two awaiting listings, one company under review, and nine companies submitting applications.

What drives these companies to launch IPOs during the national holiday? According to Bo Wenxi, Chief Economist of the China Capital Alliance, the recent buoyant performance of the Hong Kong market, particularly the notable uptick in the Hang Seng Index, has potentially influenced this trend. The vibrant market atmosphere may encourage more capital influx, thereby creating favorable conditions for IPOs. Companies often strategically time their listings to align with periods of high market valuations, seeking optimal financing terms.

Bo also noted that the timing reflects a proactive response from these companies towards existing market conditions and policy trends. Their decisions may be influenced by their current development stages and capital needs. However, it should be emphasized that market conditions, valuation levels, and overarching economic trends are critical determinants that can impact the success of an IPO.

As the trend of companies opting for Hong Kong IPOs accelerates, it aligns with the ongoing slowdown in A-share offerings and supportive policies from Hong Kong. On April 19, the China Securities Regulatory Commission announced five initiatives to foster cooperation between capital markets and Hong Kong, one of which is to "support leading domestic enterprises in seeking listings in Hong Kong." The commission aims to deepen collaboration with Hong Kong to enhance the Shanghai-Hong Kong and Shenzhen-Hong Kong stock connect mechanisms, bolstering Hong Kong’s position as a premier global financial hub and promoting the seamless growth of both markets.

Furthermore, the strong performance of recently listed Hong Kong stocks provides an additional incentive for prospective IPO candidates. Data shows that out of the 40 new stocks listed in 2024, 15 experienced share price declines on their inaugural trading day, resulting in an overall first-day price drop rate of 37.50%, an improvement from the 40.54% rate a year prior. When excluding stocks that fell below their issuance price at debut, the average first-day gain was 33.56%, compared to 18.34% in the previous year.

Despite the uptick in IPO submissions, there remains a notable absence of large-scale listings. Observationally, 2024 witnessed a small surge, with 19 companies applying to the Hong Kong Stock Exchange between June 24 to June 28, marking a record for the year in terms of applications. However, high-profile IPOs are still quite restricted.

According to Wind’s statistics, the 40 new stocks listed in 2024 collectively raised 17.6 billion HKD, with only five surpassing the 1 billion HKD threshold, and Teaboy leading the charge with a fundraising amount of 2.586 billion HKD. Comparatively, the 37 new stocks listed during the corresponding period last year raised a total of 20.1 billion HKD, of which five managed to cross the 1 billion HKD mark, and one exceeded 5 billion HKD.

Regarding the scarcity of major IPOs, a representative from a Hong Kong research institution indicated that prevailing global economic uncertainties, including trade tensions, geopolitical conflicts, and recessionary threats, have left companies wary of market predictions. Concurrently, shifts in industry competition can compel large enterprises to recalibrate strategies and adopt a more cautious approach toward going public. Regarding regulatory measures, heightened scrutiny and standards further complicate the ability for larger firms to meet requirements. Additionally, the current IPO momentum predominantly arises from domestic companies, with few foreign enterprises expressing eagerness to list in Hong Kong.

Nevertheless, market forecasts remain bullish regarding Hong Kong's IPO scene for 2024, with several foreign institutions predicting a return to the top three global fundraising markets. Both Deloitte and PwC anticipate around 80 new listings in Hong Kong, with expected proceeds amounting to 100 billion HKD. PwC foresees a resurgence of the Hong Kong IPO market positioning itself among the top three fundraising destinations worldwide. KPMG also suggests that 2024 will see around 90 companies launching IPOs, with similar projected fundraising goals surpassing the 100 billion HKD mark.

Despite the relatively low IPO thresholds and high levels of international participation in the Hong Kong market, persistent issues have historically plagued the IPO process. Notably, liquidity concerns and susceptibility to market fluctuations have long been perceived as a fundamental weakness of the Hong Kong stock market.

In contrast to its A-share counterpart, the average daily turnover on the Hong Kong stock market has consistently remained lower. As of now, daily averages hover around 100 to 150 billion HKD, whereas even amid a contraction trend in A-shares for 2024, the daily turnover remains around 600 billion HKD.

A Hong Kong market researcher remarked that amidst the liquidity struggles, over 90% of the capital's flow is concentrated among the top 10% of enterprises by market cap, leaving smaller companies in a liquidity desert, with some even facing zero trading volume. Furthermore, due to Hong Kong's peg system, liquidity is heavily reliant on international capital inflows. This dynamic hampers IPO candidates from securing over-subscriptions on the Hong Kong Stock Exchange, thereby elevating the risk of price drops post-IPO.

The liquidity issues associated with the Hong Kong market have hindered IPO enterprises from achieving significant levels of over-subscription, substantially increasing first-day price drop risks. According to Ernst & Young, the average over-subscription multiples for new stocks in Hong Kong were 4 times and 8 times in the first halves of 2022 and 2023, respectively, with over 60% of IPOs in the latter period garnering over-subscription rates below 10 times; concurrently, the first-day price drop rates surged to 45% and 52% during the same periods.

It is noteworthy that despite earlier concerns regarding liquidity, a steady inflow of southbound capital over the past year has significantly restored market liquidity. Coupled with heightened trading activity, the average over-subscription multiple for new shares in Hong Kong surged to an impressive 196 times. Moreover, it is expected that over 90% of the new stocks set to launch in 2024 will enjoy over-subscription, with over 70% experiencing over-subscription multiples exceeding 10 times.

Industry analyses suggest that amid the increasing trend of IPOs in Hong Kong, the influx of high-quality companies will significantly enhance the market's appeal to investors. This is anticipated to stimulate continuous capital inflows from both southern-bound and international investors, consequently boosting transaction volumes and turnover alike. However, whether this momentum will bolster Hong Kong's longer-term performance remains to be closely monitored.