China Inc. Returns: What’s Driving HKEX’s Boom – CFA Institute Enterprising Investor

Ever because the financial reform and opening of Chinese language Mainland markets within the Nineteen Eighties, Chinese language Mainland enterprises have lengthy desired to lift funds by way of fairness and bond issuance to international buyers. Even amidst the height of onshore home progress, Chinese language Mainland companies have been actively engaged in offshore listings to entry international capital swimming pools backed by arduous (fully-convertible) currencies, such because the US greenback.

This put up builds on my earlier evaluation of Hong Kong SAR market’s IPO resurgence. On this piece, I look at the broader forces behind the phenomenon, together with how shifting rules, US–China tensions, and Hong Kong Exchanges and Clearing Restricted (HKEX) reforms are reshaping international capital flows and channeling Chinese language Mainland listings again to Hong Kong SAR.

Up till 2025, greater than 300 Mainland Chinese language firms had listed abroad and raised a whole bunch of billions of US {dollars} in whole. In 2020, throughout the COVID-19 pandemic, which marked the final peak of IPOs, firms listed on the HKEX raised round $50 billion from IPO proceeds, pushed primarily by secondary listings within the Hong Kong market from already US-listed Chinese language Mainland tech giants like JD and NetEase.

From Wall Avenue to Central: How China’s Capital Flows Are Rebalancing

For many years, international IPO exercise has been dominated by the NYSE and NASDAQ, exchanges that collectively account for over $50 trillion in market capitalization. Ranked #1 and #2, these US exchanges surpass the overall market cap of the remainder of the highest 10 inventory exchanges on this planet. Certainly, for many years, the NYSE and Nasdaq have dominated the worldwide IPO market. America possesses a mixture of structural, financial, and institutional benefits that appeal to international firms, together with these from the Chinese language Mainland, which have persistently demonstrated a robust urge for food for US listings.

The HKEX, regardless of being outranked by the US market in each issuance quantity and proceeds, stays among the many main inventory exchanges globally, ceaselessly rating among the many prime three exchanges worldwide when it comes to IPO proceeds, and is undoubtedly the regional gateway for the Higher China market.

Chinese language Mainland firms looking for offshore capital have sometimes confronted a binary alternative: America (NYSE/Nasdaq) or Hong Kong SAR (HKEX). The US market was usually most popular, particularly for tech and progress firms, on account of its international visibility, valuation premiums, and deep liquidity.

Chinese language Mainland companies not often contemplate main inventory exchanges in different markets, similar to the UK, Continental Europe, India, or Japan, due to a mixture of elements, together with a scarcity of investor familiarity, valuation disadvantages, cultural boundaries, and political elements.

Supply: SEC, HKEX, LSEG. Notes: 1. The US consists of each the NYSE and the Nasdaq; 2. Proceeds embody solely IPO issuances, excluding switch and introduction.

For international buyers, this rebalancing means new entry factors to Chinese language Mainland progress — however by way of a market extra tightly linked to home coverage and liquidity cycles.

Regulation, Danger, and Realignment

Chinese language Mainland’s path to abroad capital has basically modified over the previous decade, formed by deepening US–China tensions and new layers of regulation. Chinese language Mainland firms at the moment are dealing with extra stringent necessities to entry US capital markets. Consequently, the variety of new listings from Chinese language  Mainland firms on US exchanges has nearly halved from 19 in 1H23 to 11 in 1H25.

The passage of the Holding Overseas Firms Accountable Act (HFCAA)[1] in the USA in 2020 was a landmark, which forces obligatory delisting from the US market if a international firm fails to adjust to the PCAOB’s inspection of its audit papers.

Chinese language  Mainland nationwide safety legal guidelines prohibit the sharing of sure monetary and operational info with international entities, nonetheless. As an example, Chinese language Mainland Knowledge Safety Regulation[2] imposes strict controls on cross-border knowledge transfers, which straight collide with US necessities.

The mixed affect of regulatory boundaries, delisting waves, and geopolitical uncertainty has led to a structural realignment in international capital markets. As well as, the growing reputation of personal market capital elevating in the USA additional diminished the enchantment for public listings.

International PE funds raised $424.6 billion in 1H2025, already greater than the overall in 2024. So far, solely a minor portion of delistings of Chinese language Mainland companies have been pushed by PE acquisition in comparison with the pressured delistings. Nonetheless, higher flexibility, confidentiality, fewer disclosure necessities, and strategic management render the personal market an rising enticing different.

This shift just isn’t short-term. It’s a structural recalibration of how firms listing, how buyers consider, and the place capital flows. As US–China decoupling deepens, HKEX is positioning itself as the brand new gateway for Chinese language Mainland’s international ambitions.

Traders should adapt because the investable universe of Chinese language Mainland equities shifts from ADRs to Hong Kong SAR listings, reshaping liquidity, governance, and valuation dynamics.

Desk: Notable delistings of Chinese language Corps within the US exchanges.

Supply: SEC, NYSE, Nasdaq.

The Gateway Reinvented: HKEX’s Structural Benefit

HKEX’s latest reforms construct on a long-held benefit: proximity and coverage alignment that make it the pure vacation spot for Chinese language Mainland listings.

The Inventory Join was developed and launched by HKEX, Chinese language exchanges, and ChinaClear in 2014 to construct a mutual market entry system between Chinese language Mainland and Hong Kong SAR, permitting Chinese language Mainland buyers to commerce Hong Kong SAR shares by way of native brokers, largely boosting liquidity and valuation potential and sustaining home protection for Hong Kong SAR-listed Chinese language Mainland companies.

These modifications make HKEX not solely the itemizing venue of alternative for issuers, however an more and more necessary conduit for buyers looking for diversified publicity to Chinese language Mainland’s innovation economic system.

For a very long time, Chinese language Mainland companies most popular U.S. exchanges for dual-class share buildings that enable them to retain management whereas elevating capital; in 2018, HKEX launched weighted voting rights for revolutionary firms, providing equal flexibility and eliminating regulatory arbitrage.

As well as, HKEX’s sectoral concentrate on biotech, tech, and inexperienced vitality companies strategically aligns with the Chinese language Mainland authorities’s initiatives, leaving apart the cultural and geographic proximity to the Chinese language Mainland Collectively, these elements, mixed with the latest structural reforms, have remodeled HKEX right into a venue that’s now the de facto alternative for Chinese language Mainland companies looking for worldwide enlargement.

The New Face of Chinese language IPOs: Classes from CATL

The surge in IPOs on the HKEX on this 12 months’s first half is the end result of the regulatory panorama, structural reform, and geopolitical sentiments — a brand new chapter in how Chinese language Mainland companies entry worldwide capital and increase.

Probably the most distinguished itemizing on this rising HK IPO panorama is CATL. On Could 20, Up to date Amperex Expertise Co. Ltd. (CATL), the Chinese language Mainland battery big, accomplished the biggest IPO globally of the 12 months, elevating $5.2 billion on HKEX. The IPO was oversubscribed, and CATL exercised the overallotment choice on account of robust demand. Virtually all of the proceeds had been used for his or her European enlargement, together with an EUR8.2 billion battery plant in Hungary.

CATL’s A+H itemizing technique paid off. Its shares priced at a premium on the HKEX — a sign of robust worldwide investor confidence. This IPO is a transparent show of the dynamics of the brand new chapter of HKEX IPOs, with a Chinese language Mainland tech big efficiently elevating a big quantity by way of an A+H itemizing, using the structural reform and sectoral focus benefits of HKEX to gas its worldwide enlargement.

Together with CATL, HKEX held 4 of the world’s 10 largest IPOs on this 12 months’s first half. The $14 billion of proceeds marked a 723% YoY progress, outperforming all different international exchanges. Furthermore, HKEX has 207 lively itemizing candidates within the pipeline for 2H 2025, suggesting robust momentum and market optimism. In 1H 2025, HKEX reported income and different revenue of HKD14.08 billion, a 33% YoY progress, and a internet revenue of HKD8.52 billion, a 39% YoY progress. As a vital market liquidity measurement, common each day turnover reached HKD240.2 billion, surging 118% YoY.

Past the Increase: Focus Danger and What Comes Subsequent

But behind the record-breaking IPO surge lies a extra sophisticated actuality, one which exposes Hong Kong SAR’s rising dependence on the Chinese language Mainland. The entire market cap of HKEX presently consists of round 80% from Chinese language Mainland firms. This stage of focus brings vital publicity to the Chinese language Mainland’s financial cycles, regulatory shifts, and coverage regimes. Moreover, there’s the growing integration of Chinese language Mainland governance into Hong Kong SAR’s institutional framework.

Furthermore, many IPOs had been priced aggressively, making them susceptible to their post-IPO efficiency. The Grasp Seng index rose greater than 20% YTD, however many regard this progress as being pushed by short-term liquidity inflows quite than sustainable financial fundamentals. The momentum largely is determined by continued regulatory help, investor confidence, and steady macroeconomic circumstances.

For portfolio managers, the takeaway is evident: Hong Kong SAR’s resurgence expands alternative, however heightens correlation danger. Differentiating cyclical restoration from structural realignment will likely be key.

References

Bloomberg New Economic system: High China Economist Says Beijing Simply Needs Respect – Bloomberg

The Way forward for Investing: 2024/25 Version—Overview | Franklin Templeton Institutional

PCAOB Secures Full Entry to Examine, Examine Chinese language Companies for First Time in Historical past | PCAOB

Chinese language Firms Listed on Main U.S. Inventory Exchanges

China battery big CATL is increasing globally: Right here’s why it issues

Hong Kong’s ECM Panorama in H1 2025

Hong Kong’s IPO Increase Roars Again: Contained in the $14 Billion First-Half Surge and What’s Driving It

Non-public fairness fundraising rises in H1 2025, extra capital hinges on IPO exits | S&P International

HKEX Income and Revenue Surge Over 30% in H1, Inventory Soars 50% Yr-to-Date – Yuan Tendencies

[1] Holding Overseas Firms Accountable Act: The HFCAA was enacted on Dec 18, 2020, as Public Regulation 116-222, amending the Sarbanes-Oxley Act of 2002, SEC.gov | Holding Overseas Firms Accountable Act.

[2] Knowledge Safety Regulation of PRC: Enacted on June 10, 2021, mandates a categorized and categorized knowledge safety system on “necessary” and “core” knowledge, and triggers authorized legal responsibility for any risk to “nationwide safety,” Knowledge Safety Regulation of the Individuals’s Republic of China.