Can Hong Kong's Stock Market Regain Prosperity Through Reforms and IPOs?

Hong Kong's stock market has been on a roller coaster since the beginning of 2024, marked by a notable downward trend following a robust rally that saw it outperform most global markets in late April. As this rebound now appears to be losing momentum, investors are left wondering about the future. Meanwhile, recent reforms to boost market resilience and the urgent need for significant IPOs add complexity to the outlook.

Can the HSI Rebound to 20,000 Points?

The Hang Seng Index surged impressively in late April, driven by a combination of capital inflows and heightened risk appetite. However, May and June brought a reversal. The index saw a dramatic fall of over 10% in a few weeks, dropping back to the 18,000-point level. The big question is whether Hong Kong stocks can climb back to 20,000 points.

The performance of major stocks such as Tencent (700.HK), Meituan (3690.HK), and Alibaba (9988.HK) will be crucial. Tencent and Meituan have shown significant gains this year, increasing 20% to 30%. However, Alibaba has underperformed, rising by less than 10%, and investors who have not yet entered the market may find it unwise to chase the high performers at this stage.

HKEX's New Reform Measures

To enhance market resilience, HKEX will implement new Severe Weather Arrangements starting September 2024, allowing trading even under Typhoon Signal No. 8 or Black Rainstorm Warnings. This policy aligns with practices in Shenzhen and Shanghai, ensuring uninterrupted trading. Additionally, 2024 marks the 10th anniversary of Stock Connect, with ongoing discussions to allow mainland investors to directly use RMB to buy RMB-denominated stocks listed in Hong Kong.

The Need for a More Prosperous IPO Market

Hong Kong desperately needs a significant IPO to reinvigorate its market. IPOs in the city have raised USD 1.5 billion so far this year, according to Dealogic. Analysts believe Didi Global stands out as a potential candidate. A listing by Didi would signify Beijing's commitment to Hong Kong's future as a financial center.

HKEX Chairman Laura Cha is optimistic, noting an increase in applications. There are currently about 110 listing applications under review in Hong Kong, about a 50% increase from the second half of last year. However, the scale is still smaller than in the past, and the market requires a substantial IPO to revive investor confidence and momentum.