Sorry, It's Still Very Difficult for Investors to Exit via Hong Kong IPOs

Hot IPOs, cold exits

Hong Kong's market roar continues to mask a structural problem: listing is easy, liquidity is not. 2025 saw a torrent of new listings — Hong Kong Exchanges and Clearing (HKEX) reclaimed the top spot for global IPO fundraising with more than HK$2,850 billion raised — but most newly public names quickly find themselves illiquid. How can hundreds of companies raise billions and still have no reliable exit for investors? The short answer: depth is concentrated in a handful of giants.

Concentration and the "thin pool" problem

The market's trading pool is shallow. In 2025 the entire Hong Kong market's average daily turnover was a fraction of mainland and US markets — roughly 10% of A‑shares and 4% of US equities by the same metric — and 268 companies (top 10% by market cap) accounted for 80.33% of turnover. Tencent (腾讯), for example, alone accounted for more than 6% of daily volume. By contrast, Wind data show 1,517 Hong Kong stocks had daily trading under HK$1 million (56.6% of the market). Many firms peak on their listing day and then fade into “priced but untraded” status. Lens Technology (蓝思科技) and Geek+ (极智嘉) were among names that debuted amid fanfare only to face rapid post‑listing volume shrinkage — a common script in 2025.

Lock‑ups, looming supply and the limits of Stock Connect

Illiquidity is compounded by massive forthcoming unlocking of restricted shares. It has been reported that Pu Yin International expects about HK$1.6 trillion of restricted stock to vest in 2026, with a single‑month peak in September of more than HK$530 billion (about 32.6% of the year's total). That pressure comes after many issuers chose small free floats, leaving locked shares as a latent supply bomb. Southbound flows via Stock Connect (港股通) helped — the Hong Kong Securities and Futures Commission reported southbound trading accounted for 23.1% of turnover in H1 2025 — but inclusion is neither easy nor permanent. It has been reported that index and Stock Connect admission thresholds will be tightened (institutions expect a market‑cap floor near HK$9 billion), and Hang Seng Composite Index (恒生综合指数) rules now emphasize average market cap and turnover over a full year, making qualification harder to achieve and easier to lose. In short: Stock Connect amplifies liquidity for winners, but cannot resurrect "zombie" names.

What this means for investors

For active managers and LPs the takeaway is blunt. A one‑day IPO pop is paper wealth; real returns depend on whether a company can sustain liquidity after lock‑ups and index reviews. "If a stock's average daily turnover is below HK$10 million, we won't even consider building a position," one secondary‑market fund manager reportedly said. With thinner pools, small sell orders can trigger steep moves — 20%, 30% single‑day crashes are no longer rare on lock‑up expiries. For Western investors and allocators watching China’s listing wave, the message is clear: Hong Kong may deliver headlines and headline-sized raises, but exit risk and shallow secondary markets remain the central, unresolved story.