Hong Kong's IPO boom has been a global phenomenon, but it's also developing a performance problem. While the city's stock exchange was first in the world by IPO funds raised last year, with strong momentum continuing into 2026, the reality is that Hong Kong IPOs are broadly underperforming. Out of 179 listings since January 2025, about half have traded lower over the past three months, which is a stark contrast to the benchmark Hang Seng index and the FTSE Renaissance Global IPO Index. This trend is even more pronounced for stocks in the Stock Connect program, where over half of the 33 Hong Kong-listed stocks that joined on March 9 have dropped by 10% or more since their IPO. What's going on here? Personally, I think the answer lies in the interplay between the Hong Kong and mainland Chinese markets. Many of Hong Kong's H shares are already traded as mainland China's A shares, and capital retreats to the often cheaper A shares after the stocks have joined the Connect program. This dynamic has likely placed pressure on short-term performance in Hong Kong IPOs. What makes this particularly fascinating is the role of investment funds. Some funds in Hong Kong have capitalized on Connect inclusion as a way to generate additional returns, which may be contributing to the volatility we're seeing. In my opinion, this highlights a deeper issue with the current IPO landscape. The pressure to deliver short-term performance may be leading to a focus on quick gains rather than long-term growth. This raises a deeper question: how can we create a more sustainable and balanced approach to IPOs? One thing that immediately stands out is the role of fees and competition. Low fees and intensifying competition mean that there has unquestionably been pressure on parts of China's financial sector. This has probably placed a focus on short-term performance, which is not necessarily beneficial for long-term growth. What this really suggests is that we need to reevaluate our approach to IPOs. We need to create a more balanced and sustainable model that takes into account the interests of both investors and companies. Looking ahead, 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 listings will be crucial in determining whether the Hong Kong IPO boom can overcome its performance problem and deliver sustainable growth for all stakeholders. In conclusion, Hong Kong's IPO boom has been a remarkable success story, but it's also developing a performance problem. The interplay between the Hong Kong and mainland Chinese markets, the role of investment funds, and the pressure on short-term performance all contribute to this issue. As we look to the future, it's clear that we need to reevaluate our approach to IPOs and create a more balanced and sustainable model that takes into account the interests of all stakeholders.
