The Sword of Damocles over Hong Kong Stocks: IPO Peak and Unlocking Peak

Does the IPO peak and lock-up expiration peak affect the performance of Hong Kong stocks?

(1) In 2025, the Hong Kong Stock Exchange had 117 IPOs, raising a total of HKD 285.9 billion, returning to the top of the global rankings after 4 years. The market expects that the IPO fundraising scale of Hong Kong stocks in 2026 will continue to be strong and exceed HKD 300 billion. As of January 10, 2026, there are still 300 companies waiting to go public on the Hong Kong stock market, with the majority concentrated in technology (software services, hardware devices, semiconductors, etc.) and pharmaceuticals (biopharmaceuticals, medical devices and services), likely benefiting from the Hong Kong Stock Exchange's18Aand18C****listing rules.**

(2) The primary market's siphoning off usually does not have an absolute impact on the performance of Hong Kong stocks. Looking at it over a longer period, the IPO peak and fundraising peak (including post-listing fundraising, i.e., placements + rights issues + consideration issues) do not reverse the trend of Hong Kong stocks. A typical example is the fundraising peaks in 2010, 2014-2015, 2017, 2020, and 2025, which corresponded to bull markets in Hong Kong stocks, possibly due to a significant improvement in the Hong Kong stock market, with some companies having expansion needs, choosing to raise funds in the capital market at relatively high points.

(3) Hong Kong stock IPOs will not lead to a bear market; in fact, it may even lead to a surge in demand for the Hong Kong dollar, causing the Hong Kong dollar exchange rate to reach the strong side guarantee, prompting the Hong Kong Monetary Authority to release liquidity in the interbank market, lowering the HIBOR interest rate, and boosting the bull market of Hong Kong stocks, as seen in April-May last year.

(4) The real impact of IPOs on the Hong Kong stock market may lie in the lock-up expiration wave of cornerstone investors 6 months after the main board listing, with typical examples being mid-2011, the second half of 2015, March 2019, the second quarter of 2021, and mid-2022, where the lock-up expiration wave of cornerstone investors coincided with declines in Hong Kong stocks during similar time periods From the perspective of individual stocks, last year both CATL and Heng Rui Medicine faced significant corrections in the week before the lifting of restrictions in mid to late November, and quickly bottomed out/rebounded after the restrictions were lifted.

(5) However, there was an exception in 2025, as the lifting of restrictions only meant that cornerstone investors "can sell," not "must sell" or "sell immediately." Better-than-expected operations would attract new index funds, southbound capital, and foreign investment, and this new buying power could completely cover or even exceed the selling pressure from cornerstone investors exiting due to funding arrangements. A typical example is that the wave of lifting restrictions in the Hong Kong stock market in the second quarter of 2025 did not lead to a decline in the market.

(6) In March and September 2026, there may be a new wave of lifting restrictions on shares of medium to large companies (with a market capitalization of over HKD 30 billion).

How will stock prices fluctuate before and after the inclusion of Stock Connect and Hang Seng Tech?

(1) Stock Connect: The short-term price increase after inclusion is not effective for all companies. In fact, if we review the price performance after inclusion across the entire sample, the probability of an increase is not high.

(2) Hang Seng Tech: Due to the high number of institutional investors in the Hong Kong stock market, predictions regarding index adjustments are relatively accurate. Typically, stock prices will react about 30 days before the index adjustment (execution date); prices respond quickly within 2-3 working days after the announcement date; whether included or excluded, there is usually a decline after the index adjustment is completed (after the execution date), which typically ends after a week.

Risk Warning: Geopolitical risks, overseas inflation risks, and low expectations for domestic growth stabilization policies.

1. How to view the peak of Hong Kong stock IPOs in 2026?

(1) Do IPO peaks and lifting restriction peaks affect the trend of Hong Kong stocks?

On October 18, 2024, the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange issued a joint statement announcing the optimization of the approval process timeline for new listing applications, further enhancing Hong Kong's attractiveness as a leading international fundraising market in the region. Since 2025, the Hong Kong stock market has welcomed a new wave of listings, with 117 IPOs and a total fundraising of HKD 285.9 billion, returning to the top of the global rankings after four years. The market expects that the fundraising scale of Hong Kong stock IPOs in 2026 will continue to be strong and exceed HKD 300 billion As of January 10, 2026, there are still 300 companies waiting to go public on the Hong Kong stock market, with the majority of these companies concentrated in technology (software services, hardware devices, semiconductors, etc.) and pharmaceuticals (biopharmaceuticals, medical devices and services), likely benefiting from the HKEX's Chapter 18A and Chapter 18C listings. (1) Chapter 18A: Allows "weighted voting rights" and unprofitable biopharmaceutical companies to list in Hong Kong; Chapter 18C: Allows unprofitable and revenue-less "specialized, sophisticated, and innovative" technology companies to list in Hong Kong. (2) As of January 10, 2026, based on the current industry distribution data of companies waiting to list on the Hong Kong stock market, there is a clear concentration in the technology and healthcare sectors. The software services industry ranks first with 61 companies, followed by biopharmaceuticals (51 companies) and hardware devices (45 companies), with semiconductors and medical devices and services having 23 and 16 companies, respectively, in the hearing processing stage.

The primary market's siphoning off usually does not have an absolute impact on the trend of the Hong Kong stock market. In the two peak IPO months of May and September over the past 25 years, the Hang Seng Index and Hang Seng Tech Index both achieved positive returns, and the September market even saw a significant increase in volume.

Looking at the long term, peaks in IPO scale and fundraising (including post-listing fundraising, i.e., placements + rights issues + consideration issues) do not reverse the trend of the Hong Kong stock market, nor do they trigger a decline in the market. Typical examples include the fundraising peaks in 2010, 2014-2015, 2017, 2020, and 2025 corresponding to bull markets in Hong Kong stocks, possibly due to a significant improvement in the Hong Kong stock market, with some companies having expansion needs choosing to raise funds in the capital market at relatively high points.

Hong Kong IPOs not only do not lead to a bear market, but may even cause a surge in demand for the Hong Kong dollar, triggering the strong-side convertibility guarantee, with the Hong Kong Monetary Authority releasing liquidity in the interbank market, lowering HIBOR rates, and further boosting the bull market in Hong Kong stocks. A typical example is last year in April-May, when due to the hot financing in Hong Kong, corporate dividends and buybacks, and inflows from southbound and foreign investors into Hong Kong stocks, the demand for the Hong Kong dollar was very strong, while the US dollar remained weak in comparison, causing the Hong Kong dollar to hit the strong-side guarantee of 7.75. Subsequently, the Hong Kong Monetary Authority intervened, injecting HKD 129.4 billion into the interbank market within four days in early May, releasing liquidity and lowering HIBOR to historical lows.

The real impact of IPOs on the Hong Kong stock market may lie in the wave of cornerstone investor lock-up expirations 6 months after the main board listing: (1) The controlling shareholder has a 6-month lock-up period + cannot lose controlling shareholder status within 6 months after expiration. (2) Cornerstone investors have at least a 6-month lock-up period. Typical examples include mid-2011, the second half of 2015, March 2019, the second quarter of 2021, and mid-2022, where the wave of cornerstone investor lock-up expirations coincided with declines in the Hong Kong stock market.

From an individual stock perspective, last year, both CATL and Heng Rui Medicine faced significant corrections in the week before their lock-up expirations in mid-November, and quickly bottomed out/rebounded after the expirations.

However, there were exceptions in 2025, as the expiration only means that cornerstone investors "can sell," not "must sell" or "immediately sell." Better-than-expected operations can attract new index funds, southbound capital, and foreign investment, and this new buying force can completely cover or even exceed the selling pressure from cornerstone investors exiting due to capital arrangements. A typical example is that the wave of lock-up expirations in the second quarter of 2025 did not lead to a decline in the Hong Kong stock market.

In March and September 2026, there may be a new round of lock-up expirations for medium to large-scale companies (with a market value of over HKD 30 billion), such as Zijin Mining International and Chery Automobile, with around HKD 400 billion in lock-up expirations in September. It is important to note that the statistics for the lock-up expirations in 2026 do not include the lock-up expirations of cornerstone investors for IPO companies in the first half of 2026 after 6 months.

Note: In the traditional calculation formula for lock-up expirations in the Hong Kong stock market, the total lock-up expiration scale of all listed companies is used, which leads to some lock-up shares that are difficult to sell even after expiration being counted in the lock-up wave, for example, some smaller market cap and less liquid listed companies in Hong Kong may not be able to effectively sell even after expiration due to a lack of counterparties. Therefore, in the lock-up expiration statistics below, two criteria are used: one is to only calculate the lock-up expiration scale of companies with a market value of over HKD 30 billion, and the other is the total scale of lock-up expirations in the Hong Kong stock market.

(2) How will stock prices fluctuate before and after the inclusion of Stock Connect and the Hang Seng Tech Index?

There are two fixed "inclusion" points each year:

1. Inclusion on the first Friday of March and September, effective the following Monday: This is a regular semi-annual adjustment, usually involving the most companies. The main criterion is that the company is included in the Hang Seng Composite Index (note that it is not the Hang Seng Index). The Hang Seng Composite Index adjusts its constituent stocks every six months based on objective indicators such as market capitalization and turnover rate, with results announced in February and implemented in March (the assessment period is from January 1 to December 31 of the previous year); results are announced in August and implemented in September (the assessment period is from July 1 of the previous year to June 30 of the current year).

2. Inclusion on the first Friday of June and December, effective the following Monday: This is a quarterly rapid inclusion, only applicable to newly listed companies, and usually involves fewer companies. For newly listed companies in the first and third quarters, the Hang Seng Composite Index also conducts quarterly reviews. If they meet the inclusion criteria for the Hang Seng Composite Large Index or the Hang Seng Composite Mid Index (such as an average daily market capitalization of at least HKD 16 billion), the company will be included.

3. In addition, there are several irregular inclusion methods: For example, special rapid inclusion (if the market capitalization on the first day of listing reaches the top 10% of the Hang Seng Composite Index, inclusion occurs after 10 trading days), simultaneous listing of A and H shares (inclusion after 10 trading days and after the stabilization period of H share prices), and inclusion of companies with different voting rights (in addition to needing to be included in the Hang Seng Composite Index, they must also meet criteria such as "the total trading volume of Hong Kong stocks in the 183 days prior to the first inclusion assessment date (including the assessment date) must not be less than HKD 6 billion, and the average daily market capitalization must not be less than HKD 20 billion," etc.).

In our report "Can the inflow from the south after inclusion drive stock prices up? Which companies may be included this year?" we mentioned that although leading companies often see immediate inflows from Stock Connect after inclusion, driving stock prices up, the inflow slope is steepest in the initial days. However, the short-term stock price increase after inclusion is not effective for all companies. In fact, if we review the stock price performance after inclusion for the entire sample, the probability of an increase is not high, indicating that this is not a simple quantitative timing strategy.

The compilation rules of the Hang Seng Tech Index aim to select 30 of the most representative technology companies listed in Hong Kong. The selection first requires that the company belongs to the industrial, discretionary consumer, healthcare, financial, or information technology sectors, and its business must be highly related to technology themes such as the internet, fintech, cloud computing, e-commerce, digitalization, or intelligence; at the same time, the company must meet at least one innovation standard, including operating on a technology platform, R&D expenditure accounting for no less than 5% of revenue, or annual revenue growth of no less than 10%. Eligible securities are ranked by market capitalization, and the top 30 are selected as constituent stocks, with quarterly reviews implemented In addition, the rules have a rapid inclusion mechanism that allows newly listed stocks with high market capitalization rankings to quickly enter the index, and there is a weight limit for individual stocks in the constituent stocks (8% for non-foreign companies and 4% for foreign companies).

Regarding the inclusion/exclusion of constituent stocks in the Hang Seng Tech Index:

1. Stock prices will react 30 days in advance: This may be due to the relatively accurate predictions of index adjustments by institutional investors in Hong Kong. Typically, around 30 days before the index adjustment (execution date), stock prices will start to react. Companies included in the Hang Seng Tech Index usually see significant price increases, while companies excluded from the index typically experience price declines.

2. Rapid price reaction 2-3 working days after the announcement date: The announcement of changes in the Hang Seng Index series constituent stocks (announcement date) is usually made 10 working days (about 2 weeks) before the execution date. After the announcement, companies that are included usually see a rapid increase in the short term (2-3 working days), while companies that are announced for exclusion typically see a rapid decline in the short term (2-3 working days).

3. Regardless of inclusion or exclusion, there is usually a decline after the index adjustment is completed (after the execution date), and the adjustment typically ends after one week.

II. Global Capital Flow This Week

(1) A/H Share Market

1. Regarding AH Connect

Northbound capital's average daily trading volume decreased this week. This week (January 5 - January 9), the total trading amount of northbound capital was CNY 1.64 trillion, with an average daily trading volume of CNY 408.939 billion, a decrease of CNY 237.561 billion compared to last week's average daily trading volume.

Southbound capital flowed in this week. This week (January 5 - January 9), the net inflow of southbound capital was HKD 29.459 billion, compared to a net outflow of HKD 3.452 billion last week. In terms of individual stocks, the top net purchases by southbound capital included Xiaomi Group-W (net purchase of HKD 5.553 billion), Kuaishou-W (net purchase of HKD 2.287 billion), and SMIC (net purchase of HKD 1.719 billion); the top net sales included China Mobile (net sale of HKD 4.443 billion), Hang Seng China Enterprises Index ETF (net sale of HKD 1.966 billion), and Zijin Mining (net sale of HKD 0.683 billion).

2. Foreign Capital Flow: A Funds Inflow, H Funds Outflow Convergence

A funds inflow, H funds outflow convergence. As of this Wednesday (December 31 - January 7), foreign capital inflow into A-shares was USD 87 million, while outflow last week was USD 130 million; foreign capital net outflow from H-shares was USD 23 million, converging from an outflow of USD 79 million last week.

(2) Important Overseas Markets

1. US Stock Market Capital Flow

US stock market active and passive funds outflow. As of this Wednesday (December 31 - January 7), active funds outflow from the US stock market was USD 4.789 billion, while inflow last week was USD 2.331 billion; passive funds outflow was USD 1.417 billion, converging from an inflow of USD 6.432 billion last week.

2. Other Important Market Capital Flows: This week, Japanese market funds outflow, developed European market funds inflow increased

This week, Japanese market funds outflow, developed European market funds inflow increased. Specifically, the Japanese market saw an outflow of USD 173 million this week, compared to an inflow of USD 1.11 billion last week; the developed European market saw an inflow of USD 2.299 billion this week, compared to an inflow of USD 1.078 billion last week.

3. Risk Warning

Geopolitical conflicts exceeding expectations have led to renewed significant upward pressure on global inflation; repeated overseas inflation and the resilience of the US economy have caused the pace of global liquidity easing to be lower than expected (the pace of Federal Reserve interest rate cuts and the decline in US Treasury yields are lower than expected); domestic growth stabilization policies are weaker than expected, leading to sluggish economic recovery and a decline in market risk appetite; models based on historical data may have issues with effectiveness and applicability.

Morning's Strategic Deep Thinking

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' specific investment goals, financial conditions, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk