HKEX Q1 Earnings Preview: Can IPO Revival Drive the Hang Seng Index Rebound?

HKEX Q1 Earnings Preview: Can IPO Revival Drive the Hang Seng Index Rebound?

With Hong Kong Exchanges and Clearing (00388.HK) set to announce its first-quarter 2025 results, market attention is centered on the potential boost to overall Hong Kong stock market liquidity from a recovery in IPO activity. After a sluggish 2024, Hong Kong IPO activity has recently shown signs of a rebound, with several well-known companies filing listing applications, sparking investor hopes for a Hang Seng Index recovery. This article examines the impact of the IPO revival on the Hang Seng Index and heavyweight stocks in light of HKEX's earnings expectations.

IPO Market Thaw: From Ice Age to Recovery

In 2024, the Hong Kong IPO market hit multi-year lows in fundraising due to high global interest rates and geopolitical uncertainties. However, the first quarter of 2025 has seen a shift. Reports indicate that several tech and consumer companies have revived their listing plans, including some mainland Chinese unicorns. HKEX's CEO has previously stated that the exchange is actively optimizing listing mechanisms to attract more quality issuers. Market expectations suggest that HKEX's Q1 IPO fundraising could see sequential growth, and while absolute figures remain below historical peaks, a trend of improvement is emerging.

An IPO revival directly benefits HKEX's performance. As a trading platform, HKEX's revenue is highly correlated with market activity. New listings generate listing fees, trading fees, and settlement fees, boosting Q1 revenue. Moreover, increased IPO activity often drives up secondary market trading volumes, creating a positive cycle. According to market analysis, if average daily turnover can stay above HK$120 billion in Q1, HKEX's core revenue will receive strong support.

Hang Seng Rebound: Heavyweight Performance Is Key

The Hang Seng Index experienced volatility in early 2025, dipping below the 20,000-point mark due to US-China relations and domestic economic data. However, recent IPO news has triggered a modest rebound. The performance of heavyweights like Tencent Holdings (00700.HK) and Alibaba Group (09988.HK) is crucial to the index's direction. Tencent reported steady revenue growth in its 2024 earnings, with its video accounts and enterprise services becoming new growth drivers. Alibaba has boosted market confidence through organizational restructuring and share buyback plans. Both stocks posted positive returns in Q1, providing support to the Hang Seng Index.

However, the sustainability of the Hang Seng rebound depends on multiple factors. While an IPO revival can lift market sentiment, without fundamental improvements, the rebound may be limited. For example, uncertainty over the pace of Fed rate cuts continues to pressure capital flows into emerging markets. Additionally, improving Hong Kong stock market liquidity requires sustained northbound capital inflows. According to HKEX data, net northbound capital purchases in Q1 2025 increased year-on-year, but the growth fell short of expectations.

HKEX Earnings: Market Expectations and Risks

HKEX's Q1 results are expected to be released in late April. Analysts generally forecast revenue growth of approximately 5%-10% year-on-year, primarily driven by increased IPO fees and trading revenue. However, it is important to note that HKEX's derivatives market performance is also significant. Active trading in Hang Seng Index futures and options could contribute additional profits. On the flip side, risks facing HKEX include increased global stock market volatility that could dampen IPO activity, and potential changes in mainland regulatory policies affecting the return of Chinese concept stocks.

From a valuation perspective, HKEX currently trades at a P/E ratio of around 30x, near its historical median. If Q1 results exceed expectations, the stock price could rise further. However, investors should be cautious about the sustainability of the IPO revival. For instance, some potential issuers may delay their listing plans due to unfavorable market conditions.

Conclusion: Cautiously Optimistic, Focus on Liquidity

Overall, HKEX's Q1 earnings preview suggests that the IPO market recovery is injecting new vitality into Hong Kong stocks, but a Hang Seng rebound still requires more catalysts. The performance of heavyweights like Tencent and Alibaba is a short-term key, while the medium-to-long-term outlook depends on the global liquidity environment and the pace of mainland China's economic recovery. Investors should closely monitor average daily turnover and IPO fundraising figures in HKEX's quarterly report to gauge the sustainability of the trend. Amid uncertainty, the Hong Kong stock market is gradually emerging from its trough, but a full reversal will take time.