The Hong Kong IPO market witnessed a strong resurgence in 2025, with a total of 114 companies completing listings (excluding introduction listings and de-SPAC) and raising a combined HKD 285.6 billion (as of January 16, 2026), making it the world's largest exchange by IPO fundraising volume. In terms of post-listing performance, the market demonstrated significant profitability, with an average first-day gain of 37%, far surpassing the previous year's 8%. However, the market did not experience a uniform rise; 48 IPOs broke issue price on their debut, resulting in a break rate exceeding 40%. The divergent effectiveness of the green shoe mechanism, a standard feature in Hong Kong IPOs, emerged as a critical variable influencing new stock performance.
In theory, the green shoe mechanism should act as a "stabilizer" post-listing, but 2025 market data revealed its practical limitations. Calculated based on the intraday lowest price on the first trading day, the break rate reached 42%. Notably, IPOs equipped with a green shoe mechanism exhibited a significantly higher break rate of 48%, a figure that even surpassed the 22% break rate for IPOs without a green shoe.
It is important to note that the implementation of the green shoe mechanism itself is highly correlated with market demand. Green shoe shares are allocated to institutional investors who are not cornerstone investors; therefore, issuers typically opt for a green shoe only when institutional subscription demand is sufficient. Conversely, issuers facing weak institutional demand may forgo the green shoe. This context makes the contrasting data—where IPOs with a green shoe show a higher break rate—particularly noteworthy.
To unravel this paradox, one must understand the common execution strategy of green shoe funds. Faced with selling pressure in the morning session, green shoe funds do not rush to provide comprehensive support. Instead, their primary goal is to contain the decline within a manageable range, preventing a disorderly and sharp plunge in the stock price to conserve stabilization resources. As the trading day nears its close, these funds then concentrate their buying power to lift the price, aiming for a positive "opening" at the closing price. Taking SERES and Xunce as examples, SERES saw its intraday decline widen to 10% at one point, while Xunce experienced a maximum intraday drop of 21%. Ultimately, SERES closed at its issue price, and Xunce finished 1% above it, illustrating the strategic logic of "controlling declines + late-session rally."
Examining the performance of stabilizing agents, among the 27 deals where China International Capital Corporation (CICC) acted as the stabilizing agent, the break rate based on the intraday low was 44%. This rate narrowed to 30% when measured by the closing price, further validating the practical effect of this strategy. However, some projects still closed below their issue price even after the deployment of green shoe funds, indicating that the green shoe mechanism is not an infallible "market rescue tool."
From the perspective of sponsors, the differences in green shoe execution strategies between Chinese and foreign financial institutions directly led to significant divergences in IPO break rates and stock price volatility. Looking at break rate data, foreign investment banks generally exhibited higher rates: Goldman Sachs-sponsored IPOs had a first-day intraday break rate of 75%, followed by Morgan Stanley at 58%, with Bank of America and J.P. Morgan at 50% and 33%, respectively. In contrast, Chinese investment banks showed overall lower break rates, all below 50%. CICC, the leader in Hong Kong IPO sponsorship volume, had a break rate of 41%. CITIC Securities, ranking second in sponsorship volume, recorded a break rate of only 25%, making it the top performer among leading investment banks.
The core reason for this data discrepancy lies in the differing execution logics of their respective green shoe strategies. The trading teams executing green shoes for Chinese investment banks tend to proactively maintain price stability, intervening promptly to provide support when selling pressure emerges during the trading day. Conversely, the green shoe execution teams at foreign investment banks operate with relative independence. Furthermore, since green shoe funds can generate profits from trades executed below the issue price, some trading teams might employ a "delaying tactic" to pursue these gains, postponing stabilization actions and consequently pushing up the intraday break rate. It is crucial to note that the lower break rates of Chinese investment banks were not accompanied by lower volatility. The average maximum decline for break-price projects sponsored by Chinese banks was higher than those sponsored by foreign banks.
As illustrated, the average maximum decline for break-price projects shows significantly higher volatility for Chinese investment banks. The average maximum decline for break-price projects sponsored by Chinese banks ranged from 14% to 32%, with China Securities Co., Ltd.-sponsored break-price projects averaging a maximum decline of 32%. In comparison, the average maximum decline for foreign bank-sponsored break-price projects ranged from 6% to 12%.
Focusing on extreme declines in individual projects highlights this disparity even more starkly. Several projects sponsored by Chinese investment banks experienced maximum declines reaching 30% or even approaching 40%. For instance, CICC-sponsored Mingji Hospital saw a maximum drop of 49%, China Securities Co., Ltd.-sponsored Conch Materials Technology plunged 48%, and Huatai-sponsored Bocom Vision Cloud dropped a maximum of 45%. In contrast, the projects with the largest declines sponsored by foreign banks, such as WeRide and Pony.ai, were only around 15%, with volatility far lower than the tail-end projects of Chinese investment banks.
This phenomenon stems from Chinese investment banks having a higher proportion of tail-end projects in their portfolios. These targets typically have small market capitalizations, relatively large floating shares, and weaker fundamental support, inherently possessing high volatility. Even with intervention from green shoe funds, it is difficult to fully offset the selling pressure. Additionally, it cannot be ruled out that, possibly due to considerations related to their own capital planning, the green shoe trading teams at Chinese investment banks tend to adopt a more restrained approach in their stabilization strategies.
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