CITIC Securities points out that behind this phenomenon lies the systematic enhancement of the attractiveness of the Hong Kong stock market. Firstly, the structure and quality of asset supply are continuously improving. Secondly, liquidity is improving trend-wise against the backdrop of overseas capital inflows. Historically, each round of institutional reform and breakthrough by the Hong Kong Stock Exchange has brought a bull market that aligns with the characteristics of the times.
In the future, more high-quality leading companies listing in Hong Kong may become a catalyst for the A-share market to refocus on core assets. The current wave of A-share companies going public in Hong Kong is driven by three forces: overseas strategy, institutional convenience, and the improvement of liquidity in the Hong Kong stock market. After high-quality core assets officially start trading in Hong Kong, they will stimulate corresponding A-share trading in the short term, and the pricing power of some core assets may gradually shift southward. This phenomenon is backed by the systematic enhancement of the attractiveness of the Hong Kong stock market, with continuous improvement in the structure and quality of asset supply and trend-wise improvement in liquidity due to the return of overseas funds. Historically, each round of institutional reform and breakthrough by the Hong Kong Stock Exchange has brought a bull market that aligns with the characteristics of the times. In the future, more high-quality leading companies listing in Hong Kong may become a catalyst for the A-share market to refocus on core assets. The current wave of A-share companies going public in Hong Kong is driven by three forces: overseas strategy, institutional convenience, and the improvement of liquidity in the Hong Kong stock market. Among the 17 A-share companies that filed with the Hong Kong Stock Exchange in 2024 and the first quarter of 2025, it is common to mention in their prospectuses the use of funds raised to support overseas strategy, requiring offshore funds to support the expansion of overseas business. The need for top-down business is the main reason for the current wave of A-share companies going public in Hong Kong. The regulatory authorities in both regions have actively optimized the system, accelerating the progress of this process. In April last year, the China Securities Regulatory Commission (CSRC) released five measures for cooperation with the Hong Kong capital market, and the Hong Kong Stock Exchange optimized the approval process for A-share companies going public in Hong Kong in October last year. According to company announcements, the CSRC’s review speed for overseas listing filings has significantly accelerated in 2025, with the review time 60 days or less from over 100 days last year. On March 25, Contemporary Amperex Technology Co., Limited (CATL) obtained the CSRC’s record-filing approval for overseas issuance and listing, taking only 25 days from record-filing acceptance to approval, setting a new record for the fastest overseas issuance record in recent years. The improvement and increased of Hong Kong stock market liquidity is also very important. Since 2024, the transaction volume of the Hong Kong stock market has experienced two rounds of increases. The first round was the 924 policy in 2024, and the second round was the DeepSeek breakout during the Spring Festival in 2025. Since the Spring Festival this year, the average daily transaction volume of the Hong Kong stock market has been 26. 87 billion Hong Kong dollars, which is more than 2 times the average daily transaction volume from the beginning of 2024 to September 23.Fivefold increase. After premium core assets officially trade on the Hong Kong stock market, they will stimulate corresponding A-share transactions in the short term. Recently, A-shares listing in Hong Kong has seen a significant rise in investor attention due to the emergence of some star companies. Last year, Longpan Technology, SF Holding, Midea Group, and Chi Feng Gold saw cornerstone investor subscriptions accounting for 20%, 27%, 32%, and 27% respectively, with public oversubscription multiples of 3.
99 times, 79 times, 3.25 times, and 9.53 times. The recently issued CATL and Hengrui Medicine have seen cornerstone subscriptions reaching 66% and 43%, with public oversubscription multiples reaching 150 times and 455 times respectively. In the early stages of listing on the Hong Kong stock market, due to limited circulation, low short-selling ratios, and cornerstone investors not yet lifting restrictions, once they attract high attention, stock prices are prone to forming a one-sided bullish trend in the short term. Midea Group, SF Holding, Longpan Technology, and Chi Feng Gold have seen cumulative stock price increases of 29%, -2%, 24%, and 25% within 20 trading days after their Hong Kong IPOs. CATL and Hengrui Medicine have already achieved increases of 23% and 25% after listing this week. Additionally, we have observed that after A-share companies disclose plans to list in Hong Kong, A-share stock prices generally adjust, but Hong Kong stocks tend to show a more noticeable increase as they approach listing or after listing. Over the past two years, the A-share style has gradually become more focused on small caps and short-termism, with an increased proportion of quantitative investments. As of this Friday, the ratio of turnover between the CSI 2000 and the Shanghai-Shenzhen 300 reached an extremely high level of 99% since 2015, indicating that under the extreme small-cap style, institutions’ pricing power over core assets has significantly weakened. Premium core assets from A-shares listing in Hong Kong are expected to readjust valuations, driving a synchronized recovery in A-share stock prices. The pricing power of some core assets may gradually shift southward, as there are significant differences in asset preferences and pricing models between domestic and foreign capital. Domestic capital, under the A-share ecosystem, is adept at tracking and pricing marginal information flows and prosperity, giving extremely high valuation premiums to varieties in an upward prosperity cycle (regardless of company quality), and valuation discounts to varieties not in a favorable prosperity cycle (even if they are global leaders capable of weathering cycles). However, foreign capital generally gives higher valuation premiums to premium companies. The Hong Kong stock market used to be a global manufacturing valuation lowland. As of May 23, the overall TTM P/E median of Hong Kong’s manufacturing industry was only 9.3 times, significantly lower than the A-share’s 15.6 times and the US stock market’s 25.1 times, and it is also the only sector among all Hong Kong stocks with a valuation median below 10 times. This round of excellent A-share manufacturing companies listing in Hong Kong provides a batch of excellent manufacturing enterprises to global investors, and being in the global manufacturing valuation lowland, it will continue to attract global funds for allocation.In the future, we may witness an increased inflow of foreign capital, as well as the repatriation of Chinese residents’ overseas US dollar funds. Looking at the A-share market, sales of products with strong channel performance are mainly concentrated in quantitative products, while the issuance of institutional subjective long products remains weak. Recently, the ETF market has also shown a continuous net redemption, with a net redemption of 22.
2 billion yuan in May alone. Although the national team continues to flow in, the product form of ETFs can only provide incremental funds, lacking the ability to price individual stocks. The difference in the structure of incremental funds in the two markets may lead to a gradual shift in the pricing power of core assets listed in both places to the south. Behind this phenomenon is the systematic improvement in the attractiveness of the Hong Kong stock market: 1) The structure and quality of asset supply in Hong Kong stocks are continuously improving. For several new economic directions such as the internet, smart cars, innovative drugs, and new consumption, the Hong Kong stock market has a large number of exclusive varieties. The relatively stable and inclusive listing system of the Hong Kong Stock Exchange has allowed the Hong Kong stock market to maintain more than 70 IPOs per year even in the bear market headwinds, and the industry composition is also continuously improving. As of May 24, 2025, compared with 2016, the proportion of consumer discretionary, communication services, and information technology industries has increased by 9.3 percentage points, 6.2 percentage points, and 6.1 percentage points, respectively, while the proportion of the financial industry has significantly decreased by 15.3 percentage points. In this round of A-share companies going public in Hong Kong, about 60% of the companies are in the manufacturing industry, which will further enhance the composition of excellent manufacturing companies in the Hong Kong stock market (the Hang Seng Index previously had a manufacturing proportion of 12. 4%). In addition, in March last year, the Hong Kong Stock Exchange added a special chapter 18C for technology companies, allowing ‘specialized and refined’ technology companies without revenue or profit to go public in Hong Kong, which is expected to replicate the successful experience of the 18A rule in promoting a large number of innovative drug companies to go public in Hong Kong. Finally, the pace of US-listed Chinese concept stocks returning to Hong Kong for listing may accelerate, which also includes many exclusive varieties. 2) The liquidity of the Hong Kong stock market is improving trend-wise against the backdrop of the repatriation of overseas funds. First, technological breakthroughs represented by DeepSeek, innovative drugs, and military industry have restructured global investors’ expectations of China’s independent technological capabilities. The outbreak of trade wars has also catalyzed the diversification of US dollar funds, with Chinese assets being the most important non-US asset direction. Secondly, southbound funds continue to flow into Hong Kong stocks, with a cumulative net inflow of nearly 600 billion yuan as of May 23 this year, and we estimate that about half of this is institutional funds. Finally, the US dollar funds accumulated by Chinese enterprises and individuals overseas in recent years are expected to repatriate. The long-term fiscal predicament of the United States, the arbitrariness of Trump’s policies, and social division leading to swing voters more likely to elect extreme presidents, these factors are gradually weakening the ‘American exceptionalism’ and damaging the credibility of the US dollar.We have observed a significant transformation of US dollar funds into Hong Kong dollar deposits this year. Since May alone, the Hong Kong Monetary Authority has purchased US dollars three times, injecting liquidity of 116.6 billion Hong Kong dollars. The capital account has shifted from a deficit to a surplus, coupled with the necessity to maintain the linked exchange rate system, which will lead to a passive issuance of Hong Kong dollar base money for a considerable period in the future. The excess liquidity will continue to accumulate, gradually altering the liquidity ecosystem of the Hong Kong stock market.
Historically, each round of regulatory reform at the Hong Kong Stock Exchange has brought about a bull market that aligns with the characteristics of the era. Since 1995, the Hong Kong Stock Exchange has undergone three significant rounds of regulatory reform, namely the listing of red-chip stocks, the return of Chinese concept stocks, and the addition of chapters “18A, 8A, and 19C” in 2018. Each of these reforms has led to a bull market that reflects the era’s characteristics. We believe that we are currently in the fourth period of reform dividends. In March 2024, the Hong Kong Stock Exchange announced the addition of Chapter 18C for specialized technology companies in the “Main Board Listing Rules,” allowing “specialized, refined, and innovative” technology companies without revenue or profits to list in Hong Kong, covering mainstream cutting-edge technology fields such as information technology, advanced hardware, advanced materials, new energy and environmental protection, and new food and agricultural technology. This move is another significant reform following 2018, indicating that the Hong Kong stock market is undergoing a transformation towards “hard technology.” The recent surge of A-share listed companies going public in Hong Kong will greatly enhance the composition of high-quality manufacturing companies in the Hong Kong stock market. More high-quality leading companies listing in Hong Kong in the future could become a catalyst for the A-share market to shift its style back to core assets. The trend towards core assets in the A-share market has already shown signs. Firstly, from 2021 to 2025 (as of May 23), the excess returns of the high-performance stock index compared to loss-making stocks are -44.1%, -21.2%, -19.8%, -9.3%, and -1.6%, respectively, with a clear reduction in underperformance. Secondly, whether in terms of revenue growth or net profit margin, core assets have shown a clear relative profit advantage and strong operational resilience. Lastly, the transaction ratio of small-cap stocks relative to large-cap stocks is already at a historical high. The current A-share market lacks an external force to reshape the pricing system, similar to how foreign capital continuously flowed into A-shares through the Stock Connect in 2017. The biggest catalyst at present could be foreign capital pricing core assets in Hong Kong, becoming a new pricing anchor for core assets in A-shares and attracting domestic institutional investors to refocus on the pricing of core assets.This factor, in conjunction with the implementation of new public fund regulations, the continuous increase in insurance funds, and the return of foreign capital, may collectively drive the style of A-shares to gradually shift from small-cap and thematic rotation to core assets.
Author: Qiu Xiang, Gao Yushen, Yang Jiaqi, Liu Chuntong, Lian Yixi, Source: CITIC Securities Research. Original title: ‘Strategic Focus | Gradual Shift in Core Asset Pricing Power’ Risk warning and disclaimer: The market is risky, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial conditions, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Responsibility for investment based on this article is at one’s own risk.
