GF Securities: How will the wave of Hong Kong IPOs and lock-up expirations reshape the Hong Kong stock market trend in 2026?

GF SEC released a research report stating that the Hong Kong IPO market will not lead to a bearish market trend, and may even lead to a bull market due to the increased market demand for the Hong Kong dollar, triggering a strong side guarantee for the exchange rate of the Hong Kong dollar, and the Hong Kong Monetary Authority releasing liquidity in the interbank market, reducing HIBOR rates and boosting the Hong Kong stock market. In March and September of 2026, there may be a new wave of unlock of restricted shares for medium and large-scale companies (with market value above 30 billion Hong Kong dollars). GF SEC stated that the short-term stock price increase after the introduction of the Hong Kong Stock Connect is not effective for all companies. In fact, if we review the stock price performance after the introduction of the Stock Connect for the entire sample, the probability of increase is not high. As for the Hang Seng Tech Index, due to the large number of institutional investors in the Hong Kong stock market, predictions of index rebalancing are relatively accurate. Around 30 days before the index adjustment (execution day), stock prices usually react; within 2-3 working days after the announcement date, stock prices react quickly; whether an inclusion or exclusion, stocks usually decline after the index adjustment is completed (after the execution day) and the adjustment usually ends after a week. GF SEC's main points are as follows: Will the IPO peak and unlock peak have an impact on the Hong Kong stock market trend? (1) In 2025, the Hong Kong Stock Exchange had 117 IPOs, raising a total of 285.9 billion Hong Kong dollars, returning to the top of the global rankings after a 4-year hiatus. It is expected that the IPO fundraising scale in the Hong Kong stock market in 2026 will continue to be strong, surpassing 300 billion Hong Kong dollars. As of January 10, 2026, there are still 300 companies lining up for IPOs in the Hong Kong stock market, with the majority of companies waiting to list focusing on technology (software services, hardware equipment, semiconductors, etc.) and pharmaceuticals (biomedicine, medical devices and services), possibly benefiting from the listing on chapters 18A and 18C of the Hong Kong Stock Exchange. (2) The impact of the IPO peak and fundraising peak (including fundraising after listing, i.e. placement + rights issue + issuance at a premium) on the Hong Kong stock trend is not absolute. Looking at a longer period of time, IPO peaks and fundraising peaks do not reverse the trend of the Hong Kong stock market. For example, during the fundraising peaks of the Hong Kong stock market in 2010, 2014-2015, 2017, 2020, and 2025, there were corresponding bull markets in the Hong Kong stock market. This may be due to the obvious improvement in the Hong Kong stock market, with some companies having expansion needs and choosing to raise capital in the capital market at relatively high points. (3) IPOs will not lead to a bearish market trend in the Hong Kong stock market, and may even lead to a bull market due to the increased market demand for the Hong Kong dollar. Last year's IPOs in April-May are a typical example. (4) The real impact of IPOs on the Hong Kong stock market may be the unlock wave of cornerstone investors 6 months after the main board listing. Typical examples include the mid-2011, second half of 2015, March 2019, second quarter of 2021, and mid-2022 cornerstone investor unlock waves, all of which were accompanied by declines in the Hong Kong stock market during similar time periods. From a individual stock perspective, companies like Contemporary Amperex Technology and Jiangsu Hengrui Pharmaceuticals faced significant corrections in the week before their unlock in mid-late November last year, and quickly bottomed out or saw a rebound after the unlock was completed. (5) However, there were exceptions in 2025. Unlocking only means that cornerstone investors "can sell," not "must sell" or "sell immediately". Better-than-expected operations will attract new index funds, southbound funds, and foreign investments, which can completely cover or even exceed the selling pressure of cornerstone investors who exit due to fund arrangements. A typical example is the unlock wave in the Hong Kong stock market in the second quarter of 2025, which did not lead to a decline in the Hong Kong stock market. (6) In March and September 2026, there may be a new wave of unlock of restricted shares for medium and large-scale companies (with market value above 30 billion Hong Kong dollars). How will stock prices fluctuate before and after the introduction of the Hong Kong Stock Connect and the inclusion of the Hang Seng Tech Index? (1) Hong Kong Stock Connect: The short-term stock price increase after the introduction is not effective for all companies. In fact, if we review the stock performance after the introduction of the Stock Connect for the entire sample, the probability of increase is not high. (2) Hang Seng Tech Index: Due to the large number of institutional investors in the Hong Kong stock market, predictions of index rebalancing are relatively accurate. Stock prices usually react around 30 days before the index adjustment (execution day); stock prices react quickly within 2-3 working days after the announcement date; whether an inclusion or exclusion, stocks usually decline after the index adjustment is completed (after the execution day) and the adjustment ends within a week. Risk warning: geopolitical risks, overseas inflation risks, low expectations for domestic stable growth policies, etc.