While the Hong Kong stock market continues to experience fluctuations, with the Hang Seng Tech Index falling over 11% year-to-date, a notable trend is emerging in the primary market—mutual funds are competing with unprecedented enthusiasm to secure cornerstone investor positions in Hong Kong IPOs.
According to Wind data, as of April 21, 2026, cornerstone subscription amounts for Hong Kong IPOs have reached HKD 57.435 billion, a more than sevenfold increase compared to HKD 6.758 billion during the same period in 2025. Participation by mutual fund institutions and their Hong Kong subsidiaries has exceeded HKD 3.2 billion, an 11-fold year-on-year increase, covering sectors such as hard technology, biopharmaceuticals, and new consumption.
Amid declining indices and shrinking risk appetite, leading mutual funds are actively targeting new listings, increasing their stakes in Hong Kong IPOs against the trend. What are they betting on?
A Surge in IPOs at Valuation Bottoms
The first quarter of 2026 saw a long-awaited surge in Hong Kong's IPO market. Data shows that 40 companies went public during this period, raising a total of HKD 110.163 billion, ranking first globally in fundraising scale. Compared to the 16 listings in the same period of 2025, the number of IPOs increased by 150%, while the total fundraising amount surged by 490.08%.
This growth reflects the Hong Kong Exchange's continuous efforts to optimize its listing regime. Since 2025, a series of reforms have been implemented, including enhancements to the weighted voting rights framework, expanded scope for confidential filing of listing applications, and improvements to IPO pricing and allocation mechanisms. The introduction of the "Technology Enterprise Pathway" has provided smoother listing channels for Chapter 18A (biotech) and Chapter 18C (specialist technology) companies, attracting numerous high-quality new-economy firms to list in Hong Kong.
In stark contrast to the IPO boom, Hong Kong stock valuations remain at historical lows. Currently, the Hang Seng Tech Index's price-to-earnings ratio hovers around 22–23 times, near the 32nd percentile of its historical valuation range. Since the valuation adjustment began in September 2025, the Hong Kong market has remained weak, continuing its volatile trend into early 2026.
This valuation level presents a rare window for long-term capital deployment. Yang Delong, Chief Economist at Qianhai Kaiyuan Fund, noted, "After sustained adjustments, the value of many Hong Kong-listed companies has become evident. Combined with lower IPO pricing influenced by secondary market volatility, mutual funds now have a favorable entry point."
A representative from a leading mutual fund institution stated, "The significant participation of mutual funds in Hong Kong cornerstone investments this year likely results from a combination of factors, including market valuations, investment value, policy environment, and active Hong Kong IPO activity. Institutional investors, including mutual funds, are optimistic about the long-term allocation value of Hong Kong stocks, with investments spanning not only popular sectors like technology and pharmaceuticals but also less prominent consumer stocks."
This trend marks a sharp contrast to three years ago. In 2023, when Hong Kong valuations were under pressure, mutual funds largely remained on the sidelines. Even during IPOs of mid-to-large companies like Zhenjiu LiDu and Fourth Paradigm, cornerstone investor lists rarely featured mutual funds. Their current bulk participation reflects a reassessment of the long-term value of Hong Kong equities.
Leading Funds Actively Participate, Hard Tech Emerges as Key Focus
Against a backdrop of rising global macroeconomic uncertainty, market risk appetite continues to decline. Mutual funds' investment preferences have shifted—from chasing high-growth stocks to focusing on undervalued, high-certainty assets.
Cornerstone investing aligns well with this strategic shift: it allows investors to secure shares in quality companies at IPO prices (often at a discount) in exchange for a six-month lock-up period, trading liquidity for price advantage and time for potential upside.
Hong Kong's cornerstone investment mechanism naturally favors long-term capital, fitting well with mutual funds' role as "patient capital." Meanwhile, domestic policies are guiding institutional funds toward long-term allocations. In 2025, the Securities Association of China suggested that IPO allocations should favor core institutional investors with strong research capabilities, long holding periods, and substantial capital, including funds, insurers, securities firms, and QDIIs.
Mutual funds' deep research capabilities enable them to identify undervalued quality assets before IPOs. Although there is a risk of post-listing price declines, mutual funds' risk controls and long-term holding strategies allow them to tolerate short-term volatility, focusing instead on returns driven by fundamental performance over time.
Disclosed cases show that leading mutual fund institutions, including E Fund, China Asset Management, GF Fund, Southern Asset Management, and Fullgoal Fund, are almost all actively participating.
Mutual fund investments are concentrated in three main areas: hard technology and advanced manufacturing, biopharmaceuticals, and new consumer sectors.
Changchun Chenxi (3277.HK), a semiconductor company specializing in high-performance CMOS image sensor (CIS) R&D and design, has attracted interest from E Fund, China Asset Management, GF Fund, and Fullgoal Fund due to its global third and domestic first positions in industrial and scientific imaging CIS, along with a high gross margin of 66.9% reflecting strong profitability.
Companies like Ming Ming Is Busy (1768.HK), Biren Technology (6082.HK), Shenghong Tech (2476.HK), and Tianshu Zhixin (9903.HK) have gained strategic allocations from mutual funds in the early 2026 Hong Kong IPO wave, thanks to their unique competitive advantages and scarcity in sectors such as new consumer goods, domestic GPUs, AI computing PCBs, and general-purpose computing.
Are Mutual Funds Profiting from Cornerstone Investments?
Mutual funds participate in Hong Kong stock investments through three main avenues: as cornerstone investors in IPOs, via the Stock Connect mechanism, and through direct secondary market purchases. While all involve buying stocks, they differ fundamentally in market level, pricing mechanisms, lock-up periods, pricing power, and investment strategies.
Cornerstone investing is a primary market activity, involving subscription at IPO prices (often discounted) but requiring a lock-up period of at least six months. Institutions have some influence in pricing, with the strategy essentially trading liquidity for cost advantage and patience for long-term value, suitable for long-term allocation.
Stock Connect involves secondary market trading at real-time market prices, with no lock-up periods and T+0 settlement, offering high flexibility. However, investors have no pricing power and are limited to stocks included in the Connect program, making it suitable for tactical allocations and trading.
Direct secondary market purchases also occur in the secondary market, executed at market prices with no lock-up restrictions, covering all listed Hong Kong stocks. However, large purchases may face liquidity impact costs, and investors lack pricing power.
In summary, cornerstone investing offers "discount + lock-up," while Stock Connect and direct secondary market purchases provide "market price + flexibility." These methods complement each other, allowing mutual funds to choose based on investment objectives and market conditions.
In the first quarter of this year, active equity funds reduced both their allocation weights and coverage of Hong Kong stocks to avoid existing market risks. Persistent volatility in the Hang Seng Tech Index, foreign capital outflows, and tightening liquidity have led to sharp price fluctuations in the secondary market. For existing holdings, reducing exposure is a defensive move to avoid systemic volatility.
Reducing secondary market exposure while increasing primary market participation reveals a deeper strategic adjustment by mutual funds in the current environment. Funds are not shunning Hong Kong stocks altogether but are avoiding commonly held stocks in the Connect program in favor of seeking high-quality, moat-protected companies through cornerstone investments.
How have mutual funds fared as cornerstone investors? Among recent IPOs where fund companies participated, most stocks currently trade above their subscription prices.
For example, Tianshu Zhixin, which listed on January 8, closed at HKD 417.2 per share on April 23, up 188.52% from China Asset Management's subscription price of HKD 144.6. Biren Technology, which listed on January 2 and attracted Southern Asset Management and Fullgoal Fund as cornerstone investors at HKD 19.6 per share, saw its price rise to HKD 44.5 after strong earnings results in late March, a 127.04% increase from the subscription price.
However, not all cases have been ideal. Stocks like Seres (9927.HK), Guanghetong (0638.HK), and St. Bella Group (2508.HK), which IPOd in 2025, have declined significantly from their initial subscription prices.
This underscores that cornerstone investing is not a risk-free "IPO arbitrage" but a true test of an institution's research and pricing capabilities—the ability to identify genuine quality assets before listing ultimately determines investment performance.
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