Hong Kong’s IPO market showing signs of recovery, says OC&C Strategy Consultants
After several years of sluggish IPO activity in Hong Kong, the market is showing signs of a revival in 2025. Leo Chiang, partner at OC&C Strategy Consultants, shares his perspective on the rebound and outlines the key factors that contribute to a successful public offering.
Once a thriving hub for capital raising, Hong Kong saw a dramatic fall in both IPO deal volume and value in 2022, when total value had dropped to just $13 billion, a far cry from the $43 billion raised in the year previous.
Global investors, rattled by China’s economic slowdown and lingering geopolitical tensions, shifted their focus elsewhere. And in turn, companies looking to list on the Hong Kong Stock Exchange (HKEX) hesitated, wary of poor market conditions and uncertain returns.
But in 2025, Hong Kong’s IPO market in is showing clear signs of recovery, with values up to May already matching the total for all of 2024. This recovery is a clear indication that market sentiment is improving, and many are taking notice, seeing this as a unique opportunity to raise capital in a more supportive environment.
The resurgence is not just about big names returning to the market such as CATL, a leader in electric vehicle batteries; it also signals a more welcoming environment for smaller companies seeking to raise capital through public listings.
Besides the increase in deal value and volume, the recent IPOs are also supported by strong subscription rates and initial price performances, indicating strong investor’ sentiment.
Mixue Group, a leading beverage chain in China, listed in March with a strong first-day return of over 40%. BrainAurora Medical Technology, a company specializing in products for the assessment and intervention of cognitive impairments, was listed in January and achieved a first-month return of more than 70%.
What’s driving the revival?
Several factors have driven this resurgence. For one, global financial conditions have shifted favorably. Interest rate cuts in major economies and easing trade tensions have brought a renewed sense of confidence among global investors.
In China, targeted government policies, including interest rate reductions and cuts to the reserve requirement ratio have injected liquidity into the market and stimulated investor appetite. This has started a shift of global investors’ attitude towards the China economy and hence sentiment about the Hong Kong stock market, where international funds are gradually increasing their position here.
The return of large-cap companies to the IPO stage, such as CATL, is a strong signal that the market is healing, contrasting the previous years where listings were mostly small/micro-cap companies. Sector wise there has also been a diversification. While technology remains a dominant theme, there has been strong momentum in IPOs across retail and food services, healthcare, and industrial manufacturing.
Going public or private?
The decision to pursue an IPO is multifaceted. On one hand, the benefits are clear: an IPO can unlock access to a broader pool of capital, often with higher valuations compared to private funding. The visibility that comes with going public is also a key draw, helping companies build their brand and increase their market presence. For early investors or company founders, an IPO offers an exit strategy that can be much more liquid than private equity investments.
However, the drawbacks are also significant. The IPO process itself is typically lengthy and costly. The timeline to listing can take upwards of a year, involving intense regulatory scrutiny, legal fees, and advisory costs. Post-listing, companies must also contend with stringent reporting requirements, investor relations obligations, and the unpredictability of market sentiment.
This volatility can be especially challenging for smaller firms. In a market where liquidity is often lower for small-cap stocks, the disconnect between a company’s performance and its share price can be stark.
A study of recent IPOs in Hong Kong found that nearly 35% to 40% of small-cap companies (market cap between $250 million and $2 billion) showed solid revenue growth but experienced negative stock price movements within the first three years. By contrast, only about 20% of mid- to large-cap companies (market cap between $2 billion and $200 billion) faced this issue.
The rise of alternative funding
It’s not surprising, then, that many companies may also look for alternative funding options, including private equity (PE) or venture capital (VC) investment. These options provide faster access to capital with fewer regulatory burdens and no exposure to market fluctuations.
Private equity funds also often offer valuable strategic support, including industry expertise, wider networks to seek resources from, including strategy consultancy. All of this activity supports companies in navigating their next growth phase.
However, the trade-off is that private funding generally results in lower valuations and less visibility compared to going public. Also, private sponsors could be very involved in the business, from influencing day-to-day operation to replacing management, whereas the business will be more insulated if listing publicly.
The key to success: Strategy and preparation
As the IPO window opens, companies must carefully strategize to make the most of this opportunity. Successful listings are rarely the result of luck. They require careful preparation, robust financials, and a clear understanding of investor expectations.
The first step is to build a strong and compelling investment case which clearly demonstrates your company’s growth potential, financial health, and market differentiation. Investors are increasingly looking for companies that can demonstrate not only strong performance but also long-term sustainability and adaptability in a rapidly changing market.
In addition to building a solid financial foundation, companies need to cultivate relationships with investors early on. This includes engaging with potential cornerstone investors to gauge their interest and feedback. The more a company can do to demonstrate its value proposition to a broad and diverse investor base, the stronger its position will be in the public market.
Additionally, understanding the nuances of Hong Kong’s IPO process can help companies avoid pitfalls. Reforms to the GEM [a market with lower listing eligibility criteria] have made it easier for smaller, high-growth companies with substantial R&D investment to list. Streamlined listing process for A-share listed companies have also made accessing Hong Kong’s capital markets faster and easier.
