Hong Kong stocks are undervalued, is it better to list in the US? Not necessarily!

Since the beginning of this year, the valuation of Hong Kong stocks has been under pressure, continuing to rank as the lowest-valued stock market globally. Data from Wind shows that the Hang Seng Index (HSI.HK) has only risen by 1.12% year-to-date, with a P/E ratio of only 8.7 times; while the Hang Seng TECH Index (HSTECH.HK) has fallen by 7.91% year-to-date, with a P/E ratio of 21.6 times. These figures are much lower than the performance of the U.S. stock market. In comparison, the Dow Jones Industrial Average (DJI.US) has risen by 7.69% year-to-date, with a P/E ratio of 28.4 times; and the Nasdaq Composite Index (IXIC.US), reflecting the performance of tech stocks, has risen by 15.63% year-to-date, with a high P/E ratio of 42.0 times. It is worth noting that the outstanding performance of the U.S. stock market indices is mainly due to the significant rise of individual stocks, including the heavyweight stock NVIDIA (NVDA.US), which has risen by 128.33% year-to-date. Given that the overall valuation of the U.S. stock market far exceeds that of Hong Kong stocks, many believe that U.S.-listed companies should be able to achieve higher valuations. But is this really the case? The data may suggest otherwise. Hong Kong Stock Market IPO Performance According to data from Wind, there have been 40 companies listed through IPOs in Hong Kong this year (including the Growth Enterprise Market), raising a total of HKD 18.105 billion, significantly lower than the IPO market in A-shares and the U.S. market. The total amount raised by new listings in the U.S. this year may reach USD 25.913 billion, equivalent to around HKD 2,023.62 billion, while the amount raised by A-share IPOs may reach RMB 36.03 billion, equivalent to around HKD 38.768 billion. Based on Futu's statistics, up to now, 21 out of the new listings on the Hong Kong stock market this year have experienced a first-day drop, accounting for more than half of the total number of new listings this year; among them, 16 new listings experienced a first-day drop, accounting for 40% of the total number of new listings this year. However, the new listings market this year has also seen stocks that have doubled or more, such as EASOU TECH (02550.HK) with nearly a threefold increase, and supply chain management company EDA Group (02505.HK) with a more than doubled increase, and so on. At the same time, Wind's data shows that 26 listed companies have delisted from the Hong Kong stock market this year, with 10 companies being privatized, redeemed, or voluntarily withdrawn from the market (i.e., voluntarily delisted), including well-known enterprises such as Weiqiao Textile, Sais Pharmaceutical, China International Marine Containers, Jinzhou Bank, Haitong International. The reasons for their delisting are related to their own development strategies. For example, China International Marine Containers, with its relatively low valuation, provides great convenience for major shareholders to privatize at a lower valuation. However, a total of 16 listed companies have had their listing status revoked this year. These companies typically have significant corporate issues, leading to long-term suspensions or other violations of the listing rules 6.01 and 6.01A of the Hong Kong Stock Exchange—i.e., insufficient number of securities held by public shareholders, non-compliance with regulations, or the exchange deems their business no longer suitable for listing; assets do not meet requirements, financial difficulties, or net assets causing prolonged suspension From this perspective, there are also benefits to undervaluation - prompting more major shareholders of listed companies to consider privatization, achieving the rotation of the stock market and activating funds. IPO Underpricing Rate in the US Stock Market According to data from Wind by Caixin, there have been a total of 131 new listings in the US stock market (including NYSE, NASDAQ, and AMEX) this year, with 15 of them being listed through SPAC. Among these new listings, 71 have experienced underpricing since going public, accounting for 54% of the total. It is worth noting that there have been 28 Chinese concept stocks listed in the US stock market this year, including the newly listed Xing Jingweiwu (NIPG.US), accounting for 21% of the total number of new listings in the three major US stock markets. Among the Chinese concept stocks listed this year, 23 have experienced underpricing since going public, accounting for 82% of the total. Currently, there are only 5 Chinese concept stocks that are trading above their IPO prices, including: UBXG.US, an AI-driven insurance value-added service company, which has risen by 53% since listing; JUNE.US, a Hong Kong indoor design and decoration service supplier, which has risen by 20% since listing; PGHL.US, a transportation company serving Hong Kong construction contractors, which has risen by 16.25% since listing; QMMM.US, a Hong Kong digital advertising marketing company, which has risen by 1% since listing; and Xing Jingweiwu held by Ho Hau Chong's son Ho Youjun, which has only risen by 0.22% in just one trading day since listing. From these data, it can be seen that in the high valuation US stock market, new listings are also facing headwinds, and Chinese concept stocks are under even more pressure to sell, indicating that Chinese concept stocks rushing to the US stock market for listing may not necessarily gain market recognition. Looking at the performance of the NASDAQ Golden Dragon Index reflecting the performance of Chinese concept stocks this year, the cumulative decline has reached 12.01%, higher than the Hang Seng Tech Index's cumulative decline of 7.91%; with a P/E ratio valuation of only 21.1 times, also lower than the Hang Seng Tech Index's P/E ratio of 21.6 times. It can be seen that although the valuation of the US stock market is very considerable, the overall performance of new listings is not as strong as that shown by individual large giants, indicating that funds have strict selection criteria for these new listings, especially for Chinese concept stocks. In this global capital deepwater area, stock selection is even more stringent, and because these foreign funds have low awareness of well-known Chinese brands domestically, they may not be willing to follow suit. This may be an important reason for the cold reception of Chinese concept stocks in the US stock market, highlighting the attractiveness of the Hong Kong stock market - having the same cultural background, being able to meet the brand promotion needs of listed companies, and attracting mainland funds through mutual market access and obtaining foreign capital through a free financial market. As the cost of capital decreases with the arrival of the Fed's interest rate cut cycle, more freely intelligent funds will sooner or later discover the valuation gap in the Hong Kong stock market and profit from it