Hong Kong opens "grabbing" Chinese concept stocks, what other opportunities are there?

Article by: Jiao Jian, Special Correspondent of Caijing in Hong Kong

Editor: Su Qi

"In response to the latest global changes, I have instructed the Hong Kong Securities and Futures Commission and the Hong Kong Exchanges and Clearing to be prepared. If Chinese concept stocks listed overseas wish to return, Hong Kong must become their preferred listing location."

On April 13, in response to recent news about the potential delisting of Chinese concept stocks from the U.S., Paul Chan, the Financial Secretary of the Hong Kong Special Administrative Region, publicly stated this.

This statement has its background: In the past week, due to the continuous changes in the U.S. policy of imposing "reciprocal tariffs" globally, the international financial market has experienced significant fluctuations, and the financial market in Hong Kong has also been greatly affected. After a week of decline, it stabilized roughly by Friday (April 11).

According to data from that day: The Hang Seng Index closed at 20,914 points, slightly higher than the level at the beginning of January 2025. Additionally, the average daily trading volume for that week increased to HKD 427.6 billion, about a 68% increase from the previous week.

One of the important factors causing market fluctuations was a public message from U.S. media on the evening of April 10, indicating that the Trump administration is moving towards potentially delisting Chinese companies' stocks from U.S. exchanges. The incoming chairman of the U.S. Securities and Exchange Commission, Paul Atkins, may address the delisting issue after taking office.

This is also considered one of the main reasons for Paul Chan's public "call" on April 13. On this basis, Chan also revealed some of the latest developments in the Hong Kong financial market, such as the recent increased attention from many large international financial institutions and patient capital from other regions towards the Hong Kong market, exploring how to increase participation in the local market.

He also analyzed the reasons for this phenomenon, stating, "In the face of extreme actions from the U.S., countries around the world are taking countermeasures, including reassessing investment risks in the U.S. market and U.S. assets; accelerating the exploration of investment configurations that can reduce risks; speeding up discussions on trade cooperation with other trading partners; and studying the use of local currencies for settlement in bilateral trade."

To respond to the latest changes in the global financial market, the Hong Kong Special Administrative Region is actively preparing. In addition to continuing to attract quality issuers from around the world to list in Hong Kong, the Hong Kong Exchanges and Clearing has recently been intensifying its efforts to connect and promote in the ASEAN and Middle Eastern markets.

Continuing to deepen the reform of the listing system has been one of the key focuses set by the Hong Kong Exchanges and Clearing at the beginning of this year.

On this basis, Chan also pointed out that the Hong Kong Special Administrative Region has established a regulatory framework to facilitate companies already listed overseas to conduct dual listings or secondary listings in Hong Kong. To open the door for the return of Chinese concept stocks, the Hong Kong Special Administrative Region implemented listing system reforms starting in April 2018. To attract new economy companies to list in Hong Kong, the Hong Kong Exchanges and Clearing revised a series of related rules, including accepting some companies for secondary listings locally.

The so-called secondary listing is also known as "minor listing," which is an option for issuers to list on multiple exchanges. Similar methods include "dual primary listing," which means adopting primary listing methods in both listing locationsBased on a series of reforms in recent years, some market participants have pointed out to Caijing reporters that "there is still some room for improvement. For example, there is much that can be done regarding the thresholds for secondary listings."

There is actually some basic consensus in the industry, such as whether the Hong Kong Stock Exchange will lower listing requirements to continue attracting Chinese concept stocks to return to the Hong Kong market, including minimum market capitalization and minimum business requirements at the time of listing.

According to relevant regulations: companies planning to conduct a secondary listing in Hong Kong must have a market capitalization of at least HKD 3 billion. If the relevant company wishes to adopt a "dual-class share" structure and other special requirements, it must meet a series of higher thresholds, such as an expected market capitalization of no less than HKD 10 billion and a minimum revenue of HKD 1 billion in the most recent year. To reflect the high-tech attributes of listed companies in Hong Kong, applicants are also required to provide their R&D expenditures during the performance record period in certain scenarios, proving their unique business characteristics or advantages in intellectual property.

Such phenomena of "the big door is open, but the small door is not" also exist in some other scenarios. For example, companies wishing to adopt a "dual-class share structure" for their secondary listing in Hong Kong must first check whether they are listed on a "qualified exchange" or an "recognized securities exchange."

According to relevant information from the Hong Kong Stock Exchange: the so-called "qualified exchange" specifically refers to the New York Stock Exchange, NASDAQ, or the main market of the London Stock Exchange (which falls under the "premium listing" category of the UK Financial Conduct Authority); "recognized securities exchanges" include the Australian Securities Exchange, the London Stock Exchange, the Singapore Exchange, and a total of 20 others.

If a company is only listed on a "recognized securities exchange," its business must focus on Greater China; otherwise, it does not meet the listing conditions. If it is already listed on a "qualified exchange," it must also meet detailed requirements such as "at least 5 years of good compliance record, or only 2 years of good compliance record, but with a market capitalization of no less than HKD 10 billion at the time of listing."

During the previous round of Chinese concept stocks being "delisted," relevant Chinese enterprises had actually been actively returning to the Hong Kong stock market. Companies that have not yet been able to conduct a secondary listing or dual primary listing may be due to high debt ratios, negative cash flows, and having a VIE (Variable Interest Entity) structure.

"They may become targets of the so-called America First investment policy." However, at the same time, the current regulatory policies for secondary listings in the Hong Kong Special Administrative Region are also considered not yet tailored to their needs and require continuous reform.

On a positive note, a recent analysis released by UBS pointed out that since many Chinese concept stocks have already achieved dual listings in Hong Kong, the impact of this "delisting of Chinese concept stocks" is expected to be small, and the potential impact will be more controllable. UBS estimates that there are currently about 230 Chinese concept stocks listed in the U.S. Their total market capitalization exposure in the U.S. is USD 460 billion, which is significantly lower than the USD 1.1 trillion at the end of 2021The relevant data disclosed in this report shows that over the past three years, the proportion of dual-listed Chinese concept stocks in the Hong Kong stock market has increased by 30 percentage points, reaching about 60% of the total market capitalization; in addition, the proportion of southbound holdings in the Hong Kong financial market has significantly increased, rising from 5% of market capitalization in 2021 to the current 11% to 12%.

From a negative perspective: if the aforementioned "Chinese concept stocks" are delisted, it will bring a series of impacts. UBS related personnel pointed out the following multiple possibilities: reduced opportunities to access a larger pool of funds in the U.S.; a decrease in trading volume due to the turnover rate in Hong Kong being about 0.2% lower than that in the U.S.; increased concerns about financial decoupling between China and the U.S., as well as a shrinking investor base and reduced liquidity, which may lower their valuation multiples.

Author of this article: Jiao Jian, Source: Caijing Magazine, Original Title: "What Space is Left for Hong Kong to 'Seize' Chinese Concept Stocks?"

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