How to Excel in Hot Hong Kong IPO Trading -- Science Popularization from Goldman Sachs
The Hong Kong IPO market is experiencing a wave of enthusiasm. So far this year, more than 60 companies have completed IPOs, with average returns far exceeding historical averages. But amidst the IPO boom, how to identify those truly capable of sustained outperformance, and how to avoid selling pressure brought by the lifting of lock-up restrictions, are common challenges for every participant.
According to the news from Chase the Wind Trading Desk, Goldman Sachs analysts Kevin Wang and others published a research report on June 14, "Capturing Alpha Opportunities in Hong Kong IPOs," which examines return patterns, lock-up risks, and index inclusion opportunities in the Hong Kong IPO market. The data show that since 2025, newly listed Hong Kong companies have averaged a first-day gain of 45%, a first-month gain of 49%, and a 67% gain after three months. However, individual stock performance varies greatly—the strongest rose more than tenfold in six months, while the weakest fell 74%. Five characteristics are core signals for outperforming the market: large market cap, independent listing, high oversubscription in retail tranche, cornerstone shareholding of 30%-50%, and high growth in the new economy.
Over the next 12 months, about $274 billion worth of locked shares will gradually be unlocked; historical data show that the median stock price drops 4% three months after unlocking, and 7% after six months.
Quick gains do not mean stable gains: Five key variables that determine post-IPO performance
Since 2025, newly listed companies on the Hong Kong main board have averaged a first-day gain of 45%, a first-month gain of 49%, and 67% after three months. The numbers are impressive, but the divergence is also extreme—the strongest rose more than tenfold in six months, while the weakest dropped 74%.
What determines who rises and who falls? Through multi-factor regression analysis of Hong Kong IPOs since September 2024, the following five variables are statistically significant:
1. Market Cap and Listing Method Companies with large market cap and independent listing in Hong Kong systematically outperform smaller-cap companies and those with simultaneous A+H dual listings. Dual listings mean pricing has already been arbitrated in the A-share market, and premium room in the Hong Kong market is relatively limited.
2. Cornerstone Shareholding Ratio A shareholding ratio between 30%-50% is a "sweet spot"—it reflects institutional endorsement without damaging liquidity due to an excessively small float. Too high a ratio (above 52%) actually suppresses trading activity post-listing, weighing on performance.
3. Retail Oversubscription Multiple The higher the subscription multiple, the stronger the price gains in the first week after listing. However, this effect is short-lived, as initial enthusiasm fades and momentum quickly diminishes.
4. New Economy vs. Traditional Industry High-growth new economy companies (technology, biomedicine, AI) significantly outperform traditional industries after listing. The key: even if not yet profitable, as long as revenue growth is high, the market will buy in.
5. Valuation is not the main variable The price-to-sales ratio (P/S) at listing does not significantly affect post-listing performance. In other words, expensive stocks don't necessarily fall, cheap stocks don't necessarily rise—growth expectations are the key to pricing.
There is also a noteworthy "spillover effect": after a new stock in a certain industry is listed, incumbent stocks in the same sector often outperform the market in the following week, especially in healthcare and tech. After a major IPO in the US, related companies in Hong Kong often show similar linkage.
$274 billion in unlocking pressure, can the market absorb it?
This is one of the biggest potential risks in the current Hong Kong market.
Over the next 12 months, about $274 billion worth of locked shares will be unlocked, accounting for about 4.4% of Hong Kong's total market cap. This scale is historically high, due to low public float at IPO and large post-listing price gains, causing the value of locked shares to rise sharply.
History shows that after unlocking, median stock price falls by 4% in 3 months, 7% in 6 months, but there is also large divergence among individual stocks.
The determinants for post-unlock performance fall into two stages:
- Short-term (first week after unlock): The percentage of unlocked shares to total share capital is the most critical variable—the larger the unlocked proportion, the heavier the short-term selling pressure.
- Mid-term (3-6 months): The post-unlock free float percentage and cumulative price gains before unlock are main drivers. The greater the pre-unlock gains, the heavier the selling pressure after unlocking for profit-taking.
Additionally, companies with high domestic cornerstone shareholding often face greater selling pressure after unlocking.
Can the market absorb the potential $274 billion supply? Estimates indicate that potential demand for Hong Kong equity assets may exceed $400 billion, including: around $180 billion from corporate dividends and buybacks, $200-300 billion from global long-term institutional reallocations, about $200 billion potential southbound capital inflows, plus retail buying. There is some buffer space between supply and demand, but this does not mean every stock will safely get through the unlock period.
Index inclusion and Stock Connect: Two cards to hedge unlock pressure
Unlocking pressure is not unsolvable. For eligible new IPOs, inclusion in major indexes and Stock Connect are two structural catalysts that can continually bring in incremental funds.
On index inclusion:
Both MSCI and Hang Seng Index have "fast track" inclusion channels; new stocks that meet market cap and liquidity thresholds can be considered after just 10 trading days post-listing. Passive asset management tracking MSCI indexes with China stocks totals about $134 billion; Hang Seng Index (HSI) and Hang Seng Tech Index (HSTECH) tracking amounts are $28 billion and $24 billion respectively. Once included, passive fund buying is systematic and ongoing.
History shows price reactions for HSI and HSTECH constituent changes (inclusion/exclusion) are visibly stronger than for Hang Seng China Enterprises Index (HSCEI).
On Stock Connect:
Companies with secondary listings usually do not qualify for Stock Connect, but those primarily listed in Hong Kong and meeting market cap and liquidity requirements can be included. Data show that after inclusion, the proportion of southbound holdings rises by an average of 1 percentage point in the first two days, accumulates about 5 percentage points in three months—the buying momentum can last for months. Since 2025, new Hong Kong IPOs have attracted about $10 billion net southbound buying.
Three screening methods: Who deserves attention
Based on the above framework, Goldman Sachs has selected three categories of stocks worthy of investor attention:
Method One: Newly listed companies with potential for sustained outperformance
Screening criteria: listed this year, cornerstone holding 30%-50%, revenue growth over 20%, market cap above $1 billion. Thirteen stocks selected, with average cornerstone holding at 44%, average oversubscription multiple 2628 times, and expected average revenue growth of 85%.
Method Two: Stocks facing heavy unlocking pressure
Screening criteria: unlocked shares in next 12 months exceed 30% of share capital, post-IPO gain exceeds 50%, market cap above $1 billion. Forty stocks selected, with average unlock ratio of 73%, average post-IPO gain of 175%.
Method Three: Potential Stock Connect inclusion candidates
Screening criteria: listed within the past year, market cap above Stock Connect threshold (HK$5 billion), not yet included. Thirty-four stocks selected, average market cap HK$17.9 billion.
For newly listed companies with solid fundamentals, one practical strategy is: hold in the early stage, closely track the unlocking window, then systematically increase positions after most shares unlock, float expands, and Stock Connect inclusion is achieved.
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The above content is from Chase the Wind Trading Desk.
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