Hong Kong's Slowing IPO Market: A Strategic Opportunity in Distressed Valuations

Amidst the global IPO market's turbulence, Hong Kong's tech and AI sectors present a compelling case for contrarian investors. While headlines highlight a "slowing" IPO market, the reality is more nuanced: structural reforms, depressed valuations, and geopolitical realignments are creating a unique opportunity to invest in high-growth sectors at attractive prices. This article explores how Hong Kong's regulatory pivot, coupled with cyclical headwinds, is setting the stage for a tech-driven rebound—and why now is the time to act.

The Contrarian Case: When "Slowing" Means Opportunity

The perception of a "slowing" IPO market stems from two factors: the decline of SPACs and lingering geopolitical uncertainty. SPAC activity has indeed cooled, with only 12 de-SPAC deals closing in 2025 compared to 50 in 2021. Meanwhile, the U.S.-China tech rivalry has dampened investor sentiment toward Chinese listings. Yet beneath these challenges lies a vibrant IPO ecosystem. Hong Kong's 2025 IPO proceeds surged to HK$108.7 billion—a 711% year-over-year jump—driven by tech/AI firms like CATL (HK$13 billion) and Yunji Technology (AI-driven robotics).

The key is to separate the noise from the signal. While SPACs retreat, traditional IPOs thrive, and the Hong Kong Exchanges and Clearing (HKEX) has introduced reforms that will reshape the landscape. The 18C listing channel, launched in 2023 and refined in 2025, now offers streamlined access for tech firms with weighted voting rights, confidential filings, and a focus on R&D-heavy sectors. This creates a structural advantage for AI and biotech companies, many of which are undervalued relative to their growth potential.

Valuations: A Discounted Tech Frontier

The contrarian opportunity lies in valuation discounts. Despite strong IPO activity, Hong Kong's tech stocks trade at a significant discount to global peers. For example:
- Alibaba's cloud division (Cloud Intelligence Group) trades at a P/E of 21x, compared to Microsoft's 31x.
- Tencent's AI initiatives are priced at a 30% discount to Alphabet's AI segment, despite similar growth trajectories.

These gaps reflect broader investor skepticism toward Chinese tech's ability to navigate U.S. sanctions and data regulations. Yet the HKEX's reforms are directly addressing these concerns. The Technology Enterprises Channel (TECH), introduced in May 2025, allows firms to list without disclosing proprietary AI algorithms, shielding them from foreign competitors. This reduces regulatory risk and opens doors for hard-tech innovators like Insilico Medicine (AI-driven drug discovery) and Avatr (electric vehicles with autonomous systems).

Geopolitical Risks: A Double-Edged Sword

The U.S.-China tech war remains a wildcard. Washington's restrictions on semiconductor exports to China and audits of Chinese firms under the Holding Foreign Companies Accountable Act (HFCAA) have clouded the outlook. Yet these pressures could accelerate Hong Kong's position as a geopolitical safe haven for Chinese tech firms.

Consider the shift to A+H dual listings: 25 such listings were filed in 2025, up from 3 in 2024. By listing in Hong Kong, firms gain access to global capital while avoiding U.S. scrutiny. This trend is structural, not cyclical, and will persist even as geopolitical tensions ease. For investors, this means long-term exposure to firms like CATL (batteries) and Yunji (AI robotics), which are building irreplaceable advantages in their fields.

The Catalyst: Macroeconomic Recovery and Reform Momentum

Hong Kong's IPO boom is underpinned by China's quality-first growth strategy. Beijing's focus on "New Consumption + Hard Technology" has redirected capital toward sectors like AI, semiconductors, and green energy. Meanwhile, the HKEX's Fast Interface for New Issuance (FINI) platform—reducing IPO settlement cycles from T+5 to T+2—has attracted institutional investors seeking liquidity and transparency.

A rebound in China's property market and consumer spending would amplify this momentum. A 10% rise in mainland GDP growth (to 5.5% in 2025) would boost tech spending by enterprises and households alike. For now, the Hang Seng Tech Index's 30% YTD rally in 2025 reflects investor optimism—a trend that could accelerate as reforms take hold.

Investment Strategy: Target the Reforms, Mitigate the Risks

To capitalize on this opportunity, investors should:
1. Focus on 18C-compliant firms: Prioritize AI, biotech, and semiconductor companies leveraging the HKEX's reforms.
2. Look for discounted giants: Alibaba and Tencent offer compelling valuations (P/E of 11x and 14x, respectively) with catalysts like Ant Group's pending listing and Tencent's cloud AI expansion.
3. Avoid speculative bets: Steer clear of SPACs and overvalued meme stocks; stick to firms with verifiable tech barriers and R&D pipelines.

Conclusion: The Reversal Is Coming

Hong Kong's IPO market is not slowing—it is evolving. The reforms, depressed valuations, and geopolitical realignments are temporary hurdles masking a long-term tech boom. For contrarians, now is the moment to buy into AI and hard-tech leaders at discounts, while hedging against macro risks through diversified portfolios. The HKEX's 2025 surge is just the beginning; the real upside lies in the next wave of innovation.

As the saying goes, "Be fearful when others are greedy, and greedy when others are fearful." In Hong Kong's tech sector, the time to be greedy is now.