Hong Kong Stocks Continue to Rally: A Closer Look at the Factors Driving the Market

Hong Kong stocks have continued their rally, with the Hang Seng Index (HSI) and Hang Seng Tech Index (HSTI) reaching new highs in 2024. The market has gained nearly 18% and 19%, respectively, driven by a combination of policy support, economic recovery, and interest rate cuts. As we look ahead to 2025, investors should consider the key factors contributing to this rally and the potential trends that may shape the market in the coming year.

Policy Support and Economic Recovery

The most significant factor driving the Hong Kong stock market rally in 2024 was the policy support and economic recovery in the Chinese mainland. In late September and early October, mainland authorities announced sweeping stimulus measures to revive the economy, which sent the HSI to a 32-month peak at 23,241 points on Oct 7 (Source: China Daily, Jan 5, 2024). The recovering economy boosted investor confidence and contributed to the market's gains.

Interest Rate Cuts

The US Federal Reserve cut its interest rate for the first time in four years in September 2024, which also contributed to the Hong Kong IPO market's pick-up. This interest rate cut, along with Chinese economic stimuli, further fueled the market's momentum (Source: Deloitte China, 2024 Review and 2025 Outlook). Looking ahead to 2025, additional interest rate cuts by the US Fed and more Chinese economic stimuli are expected to drive the market.

Geopolitical Tensions and Policy Initiatives

Geopolitical tensions and policy initiatives have significantly impacted the investment sentiment and market liquidity in Hong Kong's IPO market. In 2024, the Hong Kong IPO market started to pick up in September, driven by a mega listing and supportive policy initiatives from both the US and China. The US Fed cut its interest rate for the first time in four years, while China introduced economic stimuli, boosting market sentiment. This momentum is expected to continue into 2025, with further interest rate cuts and Chinese economic stimuli anticipated to drive the market.

Key factors affecting market liquidity and investment sentiment in 2025 include:

1. Sino-US trade arrangements: The US tariffs on Chinese products and China's economic performance will continue to influence market liquidity and investment sentiment in Hong Kong's IPO market.
2. US Fed interest rate cuts: Additional interest rate cuts by the US Fed are expected to further boost market sentiment and investment activity in Hong Kong's IPO market.
3. Chinese economic stimuli: More Chinese economic stimuli are anticipated to be introduced in 2025, which will likely drive listings from A-share issuers, leading Chinese companies, US-listed China concept stocks, and overseas companies, thereby driving the Hong Kong IPO market.

Listings from A-share Issuers, Leading Chinese Companies, US-listed China Concept Stocks, and Overseas Companies

Listings from A-share issuers, leading Chinese companies, US-listed China concept stocks, and overseas companies are expected to drive the Hong Kong IPO market in 2025. These listings can provide investors with opportunities to capitalize on these trends in several ways:

1. A-share issuers: The A-share market is anticipated to see an increase in the number of new listings and funds raised in 2025, driven by government support for technology and innovative sectors, as well as a quality-first philosophy. Investors can capitalize on this trend by monitoring the IPO pipeline for A-share issuers planning to list in Hong Kong, conducting thorough research on the companies' fundamentals, business models, and growth prospects, and diversifying their portfolios by allocating a portion of their investments to A-share listings.
2. Leading Chinese companies: Hong Kong's IPO market has benefited from listings of leading Chinese companies in the past. In 2024, a jumbo listing from a Chinese home appliance group and three large listings from a Chinese beverage company, a logistical services company, and an advanced driver assistance systems and autonomous driving solutions provider contributed to Hong Kong's performance. Investors can capitalize on this trend by keeping an eye on the IPO plans of prominent Chinese companies, analyzing the companies' competitive advantages, market positions, and growth potential, and allocating investments to these listings, which can offer exposure to the fast-growing Chinese consumer market and other sectors.
3. US-listed China concept stocks: US-listed China concept stocks can provide investors with indirect exposure to the Chinese market. In 2025, listings from these companies are expected to drive the Hong Kong IPO market. Investors can capitalize on this trend by researching US-listed China concept stocks and their connections to the Chinese market, evaluating the companies' financial health, business models, and growth prospects, and investing in these stocks, which can offer a way to participate in the Chinese market without the direct risks associated with investing in mainland China.
4. Overseas companies: Listings from overseas companies can provide Hong Kong investors with access to global investment opportunities. In 2025, these listings are expected to contribute to the Hong Kong IPO market. Investors can capitalize on this trend by staying informed about the IPO plans of overseas companies, assessing the companies' international competitiveness, market positions, and growth potential, and allocating investments to these listings, which can offer diversification benefits and exposure to global markets.

In conclusion, Hong Kong stocks have continued to rally in 2024, driven by policy support, economic recovery, and interest rate cuts. As we look ahead to 2025, investors should consider the key factors contributing to this rally and the potential trends that may shape the market in the coming year. By staying informed about the listings from A-share issuers, leading Chinese companies, US-listed China concept stocks, and overseas companies, investors can capitalize on these trends and make well-informed investment decisions in the Hong Kong IPO market.