DeepSeek AI excitement spills over to Hong Kong’s IPO market

The Exchange Square Complex, home to the Hong Kong Stock Exchange, has been buzzing with activity as Chinese companies seize the opportunity to go public in Hong Kong. This surge in IPOs comes as global investors show renewed interest in the region, following the news of DeepSeek’s breakthrough in artificial intelligence technology in late January.

Despite lingering concerns over U.S. trade tensions, the excitement surrounding IPOs has not been this high in over three years. For early investors in startups, going public is a lucrative way to exit and realize returns on their investments. George Chan, global IPO leader at EY, noted that a confluence of factors, including the cooperation of IPO candidates, investors, and regulators, has created a healthy environment for IPOs in Hong Kong.

The return of long-term funds from the U.S. signals growing investor confidence in China. Post-IPO performance has also been promising, further boosting investor sentiment. Chinese companies like Mixue, a bubble tea giant, have successfully gone public in Hong Kong, with oversubscribed listings. Additionally, Contemporary Amperex Technology (CATL), a Chinese battery giant, filed for what could potentially be Hong Kong’s largest IPO since 2021.

The tech sector in China received a significant boost after DeepSeek claimed to rival OpenAI’s ChatGPT in reasoning capabilities at a lower cost. This development, coupled with President Xi Jinping’s meeting with tech entrepreneurs and Beijing’s increased support for the private sector, has led to a rally in Chinese tech stocks. The Hang Seng index in Hong Kong surged to three-year highs in response to these positive developments.

In the first quarter of the year, Hong Kong saw six IPOs raising over 1 billion Hong Kong dollars, a significant increase from the previous year. KPMG reported a total of 15 IPOs raising 17.7 billion HKD in the first quarter, marking the best start to a year since 2021. While there is still ground to cover to reach pre-pandemic levels, the Hong Kong stock exchange has made adjustments to its listing rules to support companies listed in mainland China seeking listings in Hong Kong.

Despite the recent uptick in IPO activity, challenges remain on the horizon. The fallout from Didi’s IPO in the U.S. in 2021 prompted regulators in both countries to scrutinize Chinese companies listing abroad. The U.S. has also indicated a potential increase in scrutiny on capital flowing to China, adding to existing trade tensions.

While the current indicators are positive, uncertainties linger, and a single incident could potentially reverse the trend. EY’s Chan emphasized the importance of sustained positive trends over a few months to ensure a continued upward trajectory in the IPO market.

As Chinese companies continue to eye listings in Hong Kong and global investors show renewed interest in the region, the IPO market is poised for further growth. With the support of regulators and investors, Hong Kong is well-positioned to capitalize on this window of opportunity and solidify its position as a key destination for Chinese companies looking to go public.