Strong Recovery in HK IPOs: Goldman Sachs Proposes Three Strategies to Capture Alpha

Overview

Goldman Sachs released a research report noting that the HK IPO market is experiencing a strong recovery in the 2025-2026 cycle, with newly listed companies achieving significant excess returns post-listing. To help investors capture alpha in this high-activity yet increasingly divergent market, the report systematically reviews structural factors affecting post-IPO performance, deeply assesses upcoming massive lock-up expiry pressure, and proposes a comprehensive framework for tactical trading utilizing index adjustments and Stock Connect inclusion mechanisms.

Core views

Post-Listing Performance Attribution: Quantitative analysis indicates that large-cap stocks and companies independently listed in HK consistently outperform small-caps and dual-listed companies. On the funding side, high retail oversubscription is a core catalyst for short-term price increases, though the effect tends to fade; meanwhile, cornerstone investor ownership between 30% and 50% serves as a reliable signal for high-quality listings and long-term excess returns. Sector-wise, structural excess returns beyond three months are highly concentrated in high-growth new economy sectors (e.g., IT, Healthcare), and initial valuation levels are not the decisive factor. Lock-up Period Risks and Supply-Demand Dynamics: Driven by low initial free floats and strong post-listing performance of new stocks over the past two years, the HK market faces a record-breaking potential lock-up expiry of approx. USD 274bn over the next 12 months. Historical data shows that stock prices typically undergo a moderate 4% to 7% correction 3 to 6 months post-expiry, with significant divergence among individual stocks. Short-term selling pressure depends primarily on the release volume relative to total share capital, while medium-term trends are determined by the post-release free float ratio and prior price gains. However, Goldman Sachs estimates that total demand exceeding USD 400bn (including USD 180bn from corporate dividends/buybacks, USD 200bn potential Southbound inflows, and foreign capital allocation) is fully capable of absorbing this supply. Liquidity Catalysts and Tactical Trading: To hedge against lock-up selling pressure, investors should focus on the liquidity buffer provided by passive funds and Stock Connect. New stocks meeting market cap and liquidity criteria can be included in MSCI and Hang Seng indices via the fast-track mechanism (requiring only 10 trading days), driving passive buying. Simultaneously, pure HK-listed stocks included in Stock Connect upon meeting conditions typically attract sustained net buying from Mainland funds in subsequent months (historical data shows an average 5 percentage point increase in Southbound ownership 3 months post-inclusion).

Analysis framework

The institution adopted a rigorous analytical approach combining quantitative and event-driven methods. First, using multi-factor regression models (examining T-statistic significance), it decomposed HK IPO samples since 2024 to isolate the contribution of factors such as market cap, subscription multiples, cornerstone ownership, and revenue growth to returns across different horizons. Second, employing historical event study methodology, it reviewed volume-price characteristics surrounding lock-up expiries and fund flow patterns before and after Stock Connect inclusion in recent years. Finally, theoretical deductions were translated into three concrete screening funnels (Watchlists), providing direct target pools for investors with varying risk appetites.

Methodology notes

• Quantitative/Factor/Portfolio TheoryMulti-factor model

  Multi-factor regression analysis to evaluate IPO return drivers

  By constructing regression models incorporating multiple factors including market cap, cornerstone ratio, and industry attributes, and calculating T-statistics for each factor, the report empirically confirms that 'moderate cornerstone ownership (30-50%)' and 'high revenue growth' are significant positively correlated factors driving medium-to-long-term relative returns post-IPO.

• Event Arbitrage & Behavioral FinanceEvent-driven analysis

  Event arbitrage based on lock-up expiry and Index/Stock Connect inclusion

  The institution specifically compiled historical median stock prices and net fund inflows surrounding two key events: 'lock-up expiry' and 'Stock Connect inclusion'. This suggests investors can treat lock-up expiry as a short-term oversold buying opportunity and position ahead or swing trade before deterministic events like Stock Connect inclusion occur.

Asset mapping & comparison

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

• Iluvatar CoreX Semiconductor (9903 HK)

  Listed in the report as a typical target with strong post-listing performance facing extremely high lock-up pressure.

  Strengths

  Return since listing reached 265%; cornerstone ownership at 43% is in the optimal range; IPO subscription multiple was as high as 414x.

  Weaknesses

  Faces lock-up expiry of up to 91% of total share capital in the next 12 months, creating immense short-term technical pressure.

  Comparison

  Compared to other targets in the group, its lock-up ratio ranks among the highest, implying stronger expected selling pressure.

  Risks

  Massive release of insider shares could trigger sharp price corrections.

• MiniMax Group (100 HK)

  A target combining high-quality fundamentals with future liquidity catalyst potential.

  Strengths

  Cornerstone ownership at 49%, IPO subscription multiple of 459x, and market cap exceeding HKD 92bn, meeting criteria for Stock Connect and index inclusion.

  Weaknesses

  Already up 140% since listing and faces 67% lock-up expiry pressure.

  Comparison

  Unlike stocks facing pure selling pressure, it has clear expectations for passive fund support via Stock Connect.

  Risks

  Valuation is somewhat stretched; needs to wait for lock-up risks to materialize.

Key data

• Avg. 1-Month IPO Return+49%Data for newly listed companies since 2025
• Avg. 3-Month IPO Return+67%Data for newly listed companies since 2025
• Potential Lock-up Expiry Size (Next 12M)USD 274bnRecord-breaking potential new supply
• Historical Median Decline 3M Post-Expiry-4%Accompanied by high return divergence
• Estimated Total Demand Size>USD 400bnCovering corporate allocations, Stock Connect, and long-only foreign capital

Impact & implications

The report argues that for newly listed companies with strong fundamentals, investors should not turn blindly bearish due to lock-up concerns. A rational strategy involves holding positions during the early IPO stage while closely monitoring upcoming lock-up expiry windows. Once technical selling pressure triggered by expiry is exhausted, and when most shares convert to free float with Stock Connect eligibility, it presents an opportune moment to systematically increase exposure and capture liquidity premiums. Furthermore, intensive new listings can also generate short-term sentiment premiums and attention spillovers for existing listed peers in the same sector.

Risks

• Concentrated lock-up expiry of up to USD 274bn over the next 12 months could trigger severe selling exceeding historical norms.
• Stocks with excessively high cornerstone investor ownership (especially domestic institutions) often face greater liquidity squeeze risks post-expiry.
• Some new economy companies exhibit high revenue growth but remain unprofitable; if macro liquidity tightens, high valuations face repricing pressure.

What to watch

• Quarterly adjustment announcements for MSCI and Hang Seng indices and new stock 'fast-track' inclusion lists.
• Progress of HK new stocks meeting market cap (>HKD 5bn) and liquidity criteria being officially included in Stock Connect (Southbound).
• New stocks approaching 6-month lock-up expiry: the interplay between actual reduction intentions and secondary market承接 capacity.