Equity issuance in Hong Kong has already topped last year's total, powered by a wave of Chinese AI listings, yet the Hang Seng index has declined close to 3%. Investors say the new listings are pulling capital away from established names rather than adding fresh money to the market.
A glut of Chinese AI companies raising equity in Hong Kong is contributing to the stock market's lacklustre performance, according to the Financial Times. Investors warn that the initial public offerings are pulling cash out of established names rather than bringing in new money.
Equity issuance in Hong Kong has already surpassed last year's total, helped by a bumper crop of AI listings and follow-on offerings. But the benchmark Hang Seng index has still declined close to 3%, a gap that highlights weak global demand for Chinese stocks even as companies face growing pressure to raise capital and expand overseas.
New listings compete for existing money
Most global fund managers remain neutral or underweight on Chinese equities, so any new company coming to market competes directly with positions investors already hold. For many Chinese companies, issuing equity in Hong Kong is one of their only funding options as credit growth has slowed in the mainland. According to Financial Times: "Right now banks are not lending money," said Hao Hong, chief investment officer at Lotus Asset Management.
China's securities regulator has also been selective about which companies can list onshore to preserve liquidity, fund managers and analysts said. That leaves Hong Kong as one of the few routes left for Chinese firms needing capital.
The IPO momentum trade has faded
Shares of newly listed Chinese AI start-ups such as Z.AI and MiniMax rallied sharply in the first half of the year. However, more than half of the companies that listed in Hong Kong in the third quarter have seen their share prices fall, tracking a global tech sell-off in July as investors soured on AI.
Many of the newly public companies are not profitable and operate in areas such as biotech and semiconductors, and the number of lossmaking groups has been rising this year. Meanwhile, mainland Chinese investment in Hong Kong has fallen away after surging to a record last year, as investors favor AI-oriented names listed on the mainland instead.
Legacy tech names weigh on the benchmark
Some of the Hang Seng's largest constituents are legacy consumer tech companies that have sold off heavily this year. Tencent, Alibaba, Xiaomi and Meituan account for more than 20% of the index and are among the most exposed to a slowdown in Chinese consumer sentiment.
The index provider added Z.AI and MiniMax to the tech composite in June, but some investors said the moves were too late.
Source: Financial Times
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