Morgan Stanley's Zhang Xiaoyu: Hong Kong stock market activity has significantly increased, with international long-term funds actively focusing on Chinese assets

◎Reporter Wang Youruo

Facing nearly 500 companies queuing for IPO in the Hong Kong stock market, Morgan Stanley Managing Director and Head of Asia-Pacific Equity Capital Markets Zhang Xiaoyu commented: “The fundamentals of the Hong Kong equity financing market remain stable in 2026 and have strong continuity. Since the beginning of the year, market activity has significantly increased.”

Since the start of 2026, the Hong Kong IPO market has continued its hot trend, with over 20 companies completing IPOs, raising approximately 10 times more than the same period last year. During the Lunar New Year opening ceremony on February 20, Hong Kong Stock Exchange Chairman Charles Li revealed that there are still 488 companies waiting in line to go public.

Meanwhile, international long-term funds are continuously focusing on core assets such as China’s AI industry chain and innovative drugs. “Whether it’s IPOs or subsequent equity offerings, we see high-quality global long-term funds and sovereign wealth funds playing important roles as cornerstone and anchor investors, demonstrating that international capital still has strong confidence in high-quality Hong Kong-listed projects,” Zhang Xiaoyu said in an exclusive interview with Shanghai Securities Journal.

Hong Kong IPOs remain active; listing structure may see “new changes”

According to Zhang Xiaoyu, the total financing amount from Hong Kong IPOs in 2026 has reached a new high for the same period in history, surpassing $10 billion, reflecting high recognition of Hong Kong as an international financing platform. Looking ahead, the number of companies queuing for IPOs continues to grow, with ample project reserves, and the market is expected to remain active.

At the same time, compared to 2025, Zhang Xiaoyu also observed new structural changes in Hong Kong’s equity financing market this year. First, the entities listing in Hong Kong are becoming more international. Besides Chinese companies, more firms with international business backgrounds or global investor bases, such as those from Europe and Southeast Asia, are considering Hong Kong listings. Second, the “A+H” listing model remains active, but there is a noticeable increase in “new and large” IPO projects. “We see more large-scale, thematically innovative, and globally attention-grabbing ‘first-time’ listing projects gradually advancing. The overall listing structure is becoming more diverse, rather than solely relying on ‘A+H’ offerings,” Zhang Xiaoyu explained.

In terms of refinancing, the market for Chinese corporate convertible bonds was very active early in 2026. Zhang Xiaoyu believes this is closely related to the further diversification of refinancing industries and products. Tech and AI-related companies still have significant capital expenditure needs in areas like computing power, R&D, and global expansion. Meanwhile, since the beginning of the year, some financial and resource companies have also actively utilized the Hong Kong refinancing market.

“Products like convertible bonds, which balance financing costs and flexibility, are increasingly accepted by issuers. This also reflects the improving functionality and inclusiveness of the Hong Kong refinancing market,” Zhang Xiaoyu said. She cited that, due to improved approval efficiency, one-year convertible bonds are particularly favored for their flexibility and execution speed. This trend has been gradually emerging since late 2025 and is expected to strengthen further in 2026.

International long-term capital participation is expected to further increase

The active Hong Kong capital market relies on support from international long-term funds. “Based on our ongoing communication with global investors and recent actual transactions, international long-term capital participation in Hong Kong’s equity financing market is currently high and continues to grow,” Zhang Xiaoyu stated.

On the secondary market level, foreign investors’ willingness to allocate to Chinese assets has significantly rebounded, with capital inflows accelerating in early 2026. According to the latest data from Morgan Stanley Research, in January 2026, net inflows of overseas funds from the US and Europe into Chinese stocks reached $8.6 billion, significantly higher than December 2025’s $3.5 billion, and hitting a monthly high since October 2024.

This trend is also directly reflected in the primary and refinancing markets. “Whether it’s IPOs or subsequent equity offerings, we see high-quality global long-term funds and sovereign wealth funds playing important roles as cornerstone and anchor investors, demonstrating strong international confidence in high-quality Hong Kong projects,” Zhang Xiaoyu said. Data from the London Stock Exchange Group (LSEG) shows that in 2025, Asia-Pacific (excluding Japan) equity financing reached $259.7 billion, a year-on-year increase of 35.3%. Morgan Stanley ranked first in underwriting volume for the entire year, with $22.135 billion, accounting for about 8.5% of the market share.

When asked about specific preferences of long-term foreign institutions, Zhang Xiaoyu believes that core sectors like AI industry chains and innovative drugs remain most attractive to international capital. She noted that long-term foreign funds tend to prefer participation in issuance projects with a certain scale, around hundreds of millions of dollars in financing. Regarding company fundamentals, they favor leading enterprises that maintain long-term dominance in niche sectors.

Focusing on core sectors like AI and innovative drugs

Zhang Xiaoyu believes that in the tech field, foreign investors remain optimistic about China’s long-term development prospects in AI and the AI industry chain, recognizing China’s comprehensive advantages in technological innovation, engineering talent supply, R&D efficiency, and cost structure. As companies involved in chips, AI software, large models, terminal applications, and robotics gradually enter the capital markets, Hong Kong is forming a more complete and investable tech ecosystem.

“Globally, major tech companies like SpaceX, OpenAI, and Anthropic are preparing for IPOs. Discussions about these companies are heating up, and such globally influential mega-projects tend to further strengthen investor long-term interest in tech and AI themes worldwide, which also helps attract investment into similar high-quality assets in Hong Kong,” Zhang Xiaoyu added.

When asked about concerns over an “AI bubble,” she responded: “Rather than investors worrying about an AI bubble, the market is conducting more rational and rigorous screening. Investors are paying more attention to the specific value positioning of companies within the AI industry chain and whether their technological capabilities can be continuously transformed into practical, scalable business value. AI companies that attract high international capital are often those that have proven they are not just ‘burning money’ but are making substantial progress in productization and commercialization, with profitability.”

The innovative drug sector shows similar characteristics. Zhang Xiaoyu believes that compared to the IPO wave from 2018 to 2021, this round of innovative drug IPOs is more mature and rational in many aspects. Industry fundamentals are improving noticeably, with faster growth in new drug sales and licensing deals. Chinese innovative drug companies with international competitiveness and commercialization capabilities still enjoy high market recognition. Meanwhile, as competition in various niche areas intensifies, Chinese pharmaceutical companies are diversifying their innovation paths, shifting investor focus from early R&D to clinical progress, product differentiation, overseas expansion potential, and mid-to-late commercialization capabilities.