Goldman Sachs: Strong Recovery in Hong Kong IPOs, Three Strategies to Mine New Share Alpha Returns

Overview

This report provides an in-depth analysis of the strong recovery in the Hong Kong IPO market during the 2025-2026 cycle and its sources of alpha returns. The report points out that although new share performance is highly differentiated, investors can build effective trading strategies by identifying key structural drivers (such as market cap, cornerstone investor structure, retail demand, and growth potential). The report focuses on the supply shock risks brought by lock-up expiry and the liquidity buffering effects of index inclusion and Southbound Connect access, ultimately providing three specific stock watchlists aimed at helping investors capture Alpha returns in the new share market.

Core views

The Hong Kong IPO market shows significant warming trends, with more than 60 new companies listed since the beginning of the year. Data indicates strong post-listing performance for new shares, with average returns of 45%, 49%, and 67% on the first trading day, within the first month, and over three months, respectively. However, individual stock performance varies greatly; the best-performing stocks rose more than tenfold within six months, while the worst fell by 74%. Core factors driving alpha returns include: First, large-cap stocks that are independently listed (not dual-listed) outperformed small-cap stocks and their dual-listed peers; second, cornerstone investor shareholdings between 30% and 50% typically signal high-quality listings and sustainable excess performance, while excessively high proportions limit liquidity; third, high retail oversubscription multiples are a major catalyst for short-term price increases, but the effect is short-lived; finally, in the long run, high-growth new economy sectors (such as biotech and AI) often outperform traditional low-growth sectors even if valuations are high or they are not yet profitable, and entry valuation is not the main factor determining post-listing performance. Regarding lock-up expiry risks, the report expects approximately $274 billion in locked shares to enter the market over the next 12 months, setting a historical record. Historical precedents show that the median stock price declined by 4% and 7% after 3 and 6 months, respectively. Short-term performance mainly depends on the proportion of expired shares to total share capital, while mid-term returns are driven by the free float ratio after expiry and pre-expiry performance. Notably, companies with a high proportion of cornerstone investors (especially domestic investors) often face greater selling pressure after expiry. Index inclusion and Southbound Connect eligibility are important buffers to mitigate selling pressure from expiring locks. New shares meeting market cap and liquidity standards can be rapidly included in the MSCI and Hang Seng Indices 10 trading days after listing, bringing passive capital inflows. Additionally, primary-listed companies meeting certain conditions can enter Southbound Connect, accessing massive mainland liquidity. Historical data shows that buying momentum following Southbound Connect inclusion usually lasts for several months, with ownership ratios increasing by 1 percentage point within two days of inclusion and rising to 5 percentage points within the following three months. Since 2025, Hong Kong new shares have attracted cumulative net southbound purchases of $10 billion.

Analysis framework

The report adopts a multi-dimensional factor analysis combined with event-driven methods. First, regression analysis is used to identify key variables affecting return rates at different time intervals (1 day, 1 week, 1 month, 3 months, 6 months) after new share listing, such as market cap, cornerstone holding ratio, oversubscription multiple, and revenue growth rate. Second, historical data is used to simulate supply and demand changes before and after lock-up expiry, quantifying the pressure of expiry scale on stock prices and evaluating the hedging effect of incremental funds brought by index inclusion and Southbound Connect on this pressure. Finally, based on the above logic, stocks with specific characteristics (such as high growth, moderate cornerstone holdings, impending expiry, or meeting Southbound Connect standards) are screened to construct tactical trading portfolios.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Supply shock from lock-up expiry vs. Demand increase from indices/Southbound Connect

  The report predicts stock price trends by analyzing the balance between potential supply from lock-up expiry ($274 billion) and potential demand from Southbound Connect and index funds (over $400 billion). This is a typical application of supply-demand analysis framework in secondary market liquidity management.

• Event Gaming and Behavioral FinanceEvent-driven analysis

  Event-driven effects of index inclusion and Southbound Connect access

  The report focuses on the specific event of new shares being included in major indices (such as MSCI, Hang Seng Index) and the Southbound Connect list, analyzing the triggered passive capital allocation and mainland capital inflows to capture price fluctuation opportunities around the events.

• Company Fundamentals and Financial Framework

  Analysis of cornerstone investor shareholding structure

  The report uses the cornerstone investor's shareholding ratio (especially in the 30%-50% range) as an important signal to judge new share quality and long-term performance. This is a unique analytical perspective combining equity structure and market behavior.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Iluvatar CoreX Semiconductor (9903 HK)

  Included in the potential high-return new share list and high expiry risk list

  Strengths

  Cornerstone holding 43%, oversubscription 414 times, revenue growth 97%, market cap $16.6 billion

  Weaknesses

  Expiry ratio in the next 12 months is as high as 91%, facing huge selling pressure

  Comparison

  Its oversubscription multiple and revenue growth are both at high levels compared to other IT new shares

  Risks

  Extremely high proportion of lock-up expiry may lead to significant short-term stock price volatility

• MiniMax Group (100 HK)

  Included in the potential high-return new share list, high expiry risk list, and potential Southbound Connect list

  Strengths

  Cornerstone holding 49%, oversubscription 459 times, revenue growth 162%, market cap $12.9 billion

  Weaknesses

  Expiry ratio in the next 12 months is 67%

  Comparison

  Has high market attention and liquidity in the IT sector

  Risks

  Expiry pressure and performance realization risk under high valuation

• Sigenergy Technology (6656 HK)

  Included in the potential high-return new share list and potential Southbound Connect list

  Strengths

  Cornerstone holding 50%, oversubscription 1102 times, revenue growth 310%

  Weaknesses

  Relatively small market cap ($6.8 billion)

  Comparison

  Revenue growth rate ranks among the top in the watchlist

  Risks

  Difficulty in maintaining high growth expectations and liquidity risk

• Knowledge Atlas Technology (2513 HK)

  Included in the high expiry risk list

  Strengths

  Market cap $30 billion, good liquidity

  Weaknesses

  Expiry ratio in the next 12 months is 46%, and post-listing return has reached 844%

  Comparison

  Previous surge was huge, so profit-taking pressure after expiry may be significant

  Risks

  Technical selling pressure caused by high volume of expiry

Key data

• Average New Share Return (Day 1 / Month 1 / 3 Months)45% / 49% / 67%Average performance of Hong Kong new shares since 2025
• Expiry Scale in Next 12 Months$274 BillionAccounts for about 4.4% of Hong Kong stock market cap, setting a historical record
• Median Stock Price Decline After Expiry4% drop in 3 months, 7% drop in 6 monthsModerate downward price pressure shown by historical precedents
• Estimated Total Demand for Hong Kong StocksOver $400 BillionIncluding corporate dividend buybacks, global institutional reallocation, Southbound Connect funds, etc.
• Ownership Increase After Southbound Connect Inclusion+1pp in 2 days, +5pp in 3 monthsShows sustained buying momentum of southbound funds
• Optimal Cornerstone Shareholding Ratio Range30% - 50%This range usually signals long-term excess performance

Impact & implications

The report believes that the Hong Kong new share market offers significant alpha return opportunities for investors, but requires precise selection of targets. For large-cap new shares with high growth and moderate cornerstone holdings, a hold strategy may yield substantial returns initially. Facing the upcoming wave of large-scale expiry, investors should be wary of short-term selling pressure from stocks with high expiry ratios, especially those that have surged previously and whose cornerstone investors are mostly domestic institutions. Meanwhile, index inclusion and Southbound Connect eligibility are not only sources of liquidity support but also important trading catalysts. Investors can position themselves in advance in potential inclusion targets, or systematically increase allocations to high-quality new shares as free float increases and Southbound Connect access occurs after expiry pressure is released.

Risks

• Lock-up expiry scale exceeds expectations, leading to severe oversupply in the market
• Global macroeconomic fluctuations affect investor risk appetite, leading to weakened demand for new shares
• Changes in Southbound Connect policies or index inclusion rules affect capital inflow expectations
• New share earnings fall short of expectations, causing high valuations to be unsustainable
• Geopolitical risks affect Hong Kong market liquidity and foreign investment participation

What to watch

• Specific timetable and scale of lock-up expiry in the next 12 months
• Progress in qualification recognition for new shares to be included in MSCI, Hang Seng Index, and Southbound Connect
• Sustained buying intensity of southbound funds on new shares and changes in holdings
• Subsequent performance of high-growth new economy sectors (such as IT, healthcare)
• Reduction behaviors and intentions of cornerstone investors after expiry