Hong Kong's Comeback Quarter: Why the Mix Matters More Than the Number

John Grey — Asia markets desk

EXECUTIVE SUMMARY

Hong Kong has reclaimed the global IPO league table not by accident but by design. Forty listings raising HK$110.4 billion in Q1 2026 — nearly six times the prior-year quarter and the strongest first quarter since 2021 — restored HKEX to the world's number-one venue by proceeds. The consensus reading is that A+H listings of Mainland giants did the heavy lifting. That is true but incomplete. The more important story is the change in mix: technology now drives 55% of fundraising, specialist-tech Chapter 18C has become a self-sustaining listings track, Southbound Connect now accounts for 22% of total HKEX turnover, and the listing pipeline includes eight international issuers — the first credible signal that Hong Kong is rebuilding as a venue for non-Chinese capital. We are buyers of HKEX equity into the H1 2026 deal flow, constructive on Hang Seng Tech and HSCEI on a relative basis, and selectively positive on cornerstone allocations into the A+H pipeline.

MARKET CONTEXT

The headline numbers are emphatic. HKEX listed 40 companies raising HK$110.4 billion in Q1 2026, against HK$18.7 billion across 17 deals in Q1 2025 — a +489% jump in proceeds and +167% in deal count. KPMG's Q1 review and HKEX's own Insight publication both flag this as the strongest opening quarter for both proceeds and volume in five years. The exchange itself has translated that activity into a record financial result: net profit of HK$5.18 billion (+27% YoY), revenue of HK$8.20 billion (+20% YoY), and average daily turnover of HK$276.7 billion — only fractionally below Q3 2025's all-time quarterly high of HK$286.4 billion.

The composition of that fundraising matters more than the absolute number. Technology, media and telecom accounted for 55% of total Q1 IPO proceeds, and HKEX hosted eight of the ten largest TMT listings globally in the quarter. A+H deals — Mainland A-share companies adding a Hong Kong listing — completed 15 IPOs and accounted for 60% of total proceeds, against just one A+H deal in Q1 2025. Specialist technology issuers under the Chapter 18C regime contributed six listings raising HK$19.5 billion, or 18% of proceeds. Top three deals — Muyuan Foods (HK$12.1bn), Eastroc Beverage (HK$11.1bn) and Montage Technology (HK$8.1bn) — span agriculture, consumer and semiconductors, illustrating that the surge is not a single-sector phenomenon. Globally, EY data shows China including Hong Kong recorded 68 IPOs raising US$16.7 billion in Q1 2026, a 181% YoY proceeds increase and the strongest growth among major markets.

KEY DEVELOPMENTS

• The A+H mechanic became a structural pipeline. The October 2024 SFC/SEHK fast-track channel for A-share companies above HK$10 billion compressed the listing timeline materially — CATL completed its A+H listing in 128 days under the framework. KPMG counts 15 A+H completions in Q1 2026 versus one in Q1 2025, and the active pipeline holds 430-plus applications. Sungrow Power Supply refiled with CICC as sponsor on April 24, extending the A+H model into clean energy alongside the existing AI/EV concentration.
• Southbound flow is now a permanent demand source. Southbound Connect daily turnover reached HK$122.5 billion in Q1 (+11% YoY), accounting for 22% of total HKEX turnover. Northbound flow set a record of RMB 324.1 billion daily ADT, +70% YoY, generating a 76% jump in cross-border trading fees to HK$277 million. The pricing implication is significant: A-H spreads have compressed from a historical 20-40% premium toward the high single digits on quality issuers.
• The August 2025 listing reform improved post-IPO liquidity. HKEX retained the standard six-month cornerstone lockup but allowed cornerstone "double-dipping" (cornerstones can also participate in pre-IPO placings) and mandated a 40% minimum allocation to the bookbuilding tranche. The result is broader institutional distribution at IPO and tighter post-listing trading — visible in the day-one print premium of recent A+H deals and the noticeable narrowing of A-H spreads in the first 30 days post-listing.
• The pipeline is internationalizing. HKEX flagged a healthy listing candidate pipeline including eight international companies. This is the first time since 2017 that international issuers represent a meaningful share of the visible queue, and it matters because it begins to disconnect the HK story from the China narrative on which it has depended for eight years.

INVESTMENT IMPLICATIONS

Our highest-conviction expression is long HKEX equity itself. The exchange operator trades at roughly 25x forward earnings against a 2023 trough of 18x, yet the structural drivers of revenue compounding — record listing pipeline, ADT trending higher, Stock Connect fees scaling — have improved meaningfully versus that trough. Goldman's projection of US$110 billion in total HK equity issuance for full-year 2026 (including US$60 billion of IPOs) is achievable on first-quarter run rate alone. KPMG's HK$350 billion full-year IPO forecast represents only a modest acceleration from Q1's pace. We size HKEX at 75 to 150 basis points of risk in an Asia-tilted equity book, with a 12-month price target implying a 15 to 20% return from current levels and stops below the 50-day moving average to manage drawdown.

The second-order trade is relative-value tilt. Hang Seng Tech and HSCEI continue to trade at a 25 to 35% forward P/E discount to the Nasdaq composite, and the supply-demand setup for Hong Kong-listed Chinese tech has shifted favorably: more high-quality issuance through A+H absorbs liquidity pressure on existing names, while Southbound flow provides a permanent marginal buyer. We tilt long HSCEI versus short Nasdaq at 50 basis points of relative risk for portfolios with mandate flexibility. On individual deal flow, cornerstone allocations into A+H listings of high-quality A-share names (consumer staples, leading semiconductor companies, clean-energy leaders) remain structurally attractive at the typical 5 to 10% IPO discount given the post-August-2025 liquidity improvements. The Chapter 18C specialist tech basket is the higher-beta expression — illiquid in size but asymmetric for multi-year holders. A pair trade of long HKEX versus short SGX captures the divergence between Hong Kong's reflating role and Singapore's slower listings recovery.

RISKS TO MONITOR

• Mainland growth disappointment. A+H valuations are ultimately anchored to Mainland fundamentals. A material weakening in China industrial production or a further leg down in property prices undermines the demand-side anchor on which the A+H pipeline depends. Watch the June and July industrial output prints closely.
• Geopolitical re-rating. US legislative or executive action restricting US institutional ownership of HK-listed Chinese securities cuts both ways: in the short term it has historically lifted Southbound bid as Mainland capital absorbs sales, but a meaningful re-rating widens equity-risk premia and breaks the relative-value case. The probability is rising into the US election cycle.
• Cornerstone fatigue. Q1 2026 cornerstone tranches were heavily concentrated among Chinese state-linked institutions. Genuine international cornerstone participation (BlackRock, Temasek, QIA, Mubadala, Fidelity) needs to scale through Q2 and Q3 to sustain the post-IPO trading profile that has supported recent deal economics.
• HKEX execution risk. The exchange now has a record 430-plus listing applications under review. Capacity-constrained sponsors and underwriters could create a logistical bottleneck that delays deal flow into Q3, compressing the visible IPO calendar exactly when seasonal volatility tends to widen pricing risk.

OUR VIEW

The market has begun to price an HKEX recovery, but it has not yet repriced the durability of the underlying franchise. The consensus narrative we hear from regional desks is that the HK boom is a Mainland-driven cyclical event that depends on A+H momentum continuing — and that any cooling of A+H flow takes the whole rally with it. We disagree. The composition of this recovery is structurally different from the 2018-2021 episodes that ended in disappointment.

Three changes underwrite that view. First, the technology mix is now self-sustaining: Chapter 18C has produced enough listings to constitute a recognizable specialist-tech track, and the A+H pipeline is dominated by capital-intensive issuers (semiconductors, clean energy, EV battery, AI infrastructure) that genuinely need international capital alongside their Mainland base. Second, Southbound flow at 22% of turnover represents a permanent change in the marginal-buyer mix — Mainland institutional and retail capital is now in HK to stay, in a way the 2015-2018 hot money was not. Third, the August 2025 listing reforms improved the actual mechanics of price discovery and post-IPO liquidity, which is the kind of structural improvement that compounds across cycles rather than across quarters.

The non-consensus position is to underweight conviction in the obvious A+H beneficiaries (already fully priced) and overweight conviction in the platform itself. HKEX is the cleanest expression: it captures listing fees, trading fees, Stock Connect fees, and post-listing follow-on fees in a single instrument, with operational leverage that should drive earnings growth above sell-side consensus through 2027. The pipeline of 430-plus applications and Goldman's US$110 billion full-year issuance forecast are not consensus assumptions — they are running ahead of the published estimates that drive HKEX earnings models. That is where we have edge.

This note is the work product of Solomon Grey Capital Research and is intended for institutional and professional investors. It does not constitute investment advice or an offer to transact in any security or currency. Positions referenced may change without notice. Past performance is not indicative of future results.