Hong Kong has long stood as a beacon of financial prowess, with its stock exchange often leading the world in initial public offerings (IPOs). In 2009, Hong Kong ranked as the world’s largest IPO market for the first time. A decade later, in 2019, it retained this position, buoyed by Alibaba’s significant secondary listing – a testament to the city’s financial vibrancy and its role as a gateway to global capital.
Yet, as with all golden ages, Hong Kong’s lustre is dimming. The once robust IPO market now echoes with the whispers of decline. IPO proceeds have plummeted, and the parade of high-profile listings has slowed to a trickle, mirroring Hong Kong’s broader struggle to retain its status as a global financial hub.
The numbers tell a sobering tale: in 2023, IPO proceeds fell to their lowest level in two decades, with the main board and growth enterprise market together raising only HK$46.29 billion (US$5.94 billion) by the end of the year – a dramatic 55.8 per cent decline from the previous year and less than half of Nasdaq’s US$13 billion. More concerning is that Hong Kong’s IPO market was outpaced by its mainland counterparts.
This year has offered little relief. Despite 41 companies going public and raising more than HK$19 billion (US$2.4 billion), the underlying trends are troubling. More than half of these newly listed companies opened lower than their listing price on their debut, with 49 per cent experiencing declines in stock price and 44 per cent accumulating losses of more than 10 per cent. For example, Chinese bubble tea maker Sichuan Baicha Baidao Industrial, despite being the biggest debut of 2024, saw its stock plunge by 27 per cent on its first day and has gone further down since listing.
Similarly, Black Sesame International Holding, a company specialising in autonomous driving technologies, further underscores the pitfalls of Hong Kong’s current IPO landscape. Despite raising significant capital, its stock swiftly plummeted by over 30 per cent, revealing a weak financial foundation marked by growing substantial net losses totalling nearly 10 billion yuan (US$1.4 billion) in the last three years.
This rapid decline and the company’s consistent financial underperformance reveal a worrying trend: companies heavily reliant on future potential rather than present financial stability often contribute little to market value, especially in an environment as volatile as today’s. The rush to list such companies only adds to the instability, eroding investor confidence.
Bonnie Chan, chief executive officer of Hong Kong Exchanges & Clearing Ltd, during the listing ceremony of Black Sesame International Holding in Hong Kong on August 8. Photo: Bloomberg
This volatility isn’t merely a financial concern; it could be a reputational crisis. Hong Kong, once a bastion of financial stability, is at risk of becoming synonymous with market fragility. Emphasising quantity over quality leads to an influx of listings with weak financial underpinnings, driving away the long-term investors who once sought refuge in the city’s markets. This trend threatens to undermine the very foundation of Hong Kong’s financial system, eroding investor confidence and tarnishing the city’s hard-earned reputation.
Despite efforts to reinvigorate the market, Hong Kong Exchanges and Clearing faces significant challenges. The number of IPOs remains low, and the market is grappling with the impact of geopolitical tensions. Strained relations between China and the West have created uncertainties, making it more difficult for HKEX to attract high-quality listings. These geopolitical factors, combined with the market’s existing vulnerabilities, present a formidable challenge for Hong Kong’s aspirations as a global financial hub.
Moreover, speculation that Chinese giants such as Ant Group and ride-hailing app Didi Chuxing might seek to list in Hong Kong raises concerns about whether the market is truly ready to support such high-profile and complex companies. If these giants were to list in Hong Kong, the market’s ability to handle and support their growth would be put to the test, potentially revealing further cracks in the city’s financial infrastructure.
A strong and vibrant capital market is more than just an economic asset; it embodies the very spirit of Hong Kong – a city built on resilience, opportunity and global connectivity. To preserve this legacy, HKEX and regulatory bodies should tighten listing requirements and enhance the vetting process.
Equally important is encouraging top-tier companies to choose Hong Kong for their public offerings. Offering tax benefits, regulatory support or enhanced market exposure to firms that meet the highest standards of financial and operational excellence could make Hong Kong a more appealing destination for the best companies worldwide.
The Didi ride-hailing app on a smartphone in Shanghai. There is speculation that Chinese giants such as Ant Group and Didi Chuxing might seek to list in Hong Kong. Photo: Bloomberg
Lalatech, the company behind Lalamove, exemplifies the type of business Hong Kong needs to attract. With gross profit margins climbing from 39.4 per cent in 2021 to 61.2 per cent in 2023, and an adjusted net profit of US$391 million last year, Lalatech’s strong fundamentals and position as the world’s largest closed-loop freight transaction platform are evident.
Though it has already filed for a Hong Kong listing, it has yet to debut. Successfully bringing companies – especially home-grown unicorns like Lalatech – to market is crucial for maintaining Hong Kong’s competitive edge in the global financial landscape.
The need for change is clear. By focusing on attracting and supporting companies that bring genuine value, Hong Kong can rebuild its reputation and ensure that its financial markets remain competitive on the global stage.
The time to act is now – before the market’s foundations are further weakened by an overemphasis on expanding the number of listings without regard for their impact. Through strategic action and well-crafted incentives, Hong Kong can once again become a beacon of stability and growth, reflecting the indomitable spirit that has always defined the city.
Jeffrey Wu is a director at MindWorks Capital, a leading Hong Kong-headquartered venture capital firm specialising in technology investment across Greater China and Southeast Asia
