Hong Kong and US Stock IPO Investment Guide: From Beginner to Expert, a Must-Read for New Stock Investments

What is IPO investing? Why are so many people paying attention?

You often hear in financial news that a certain company is launching an IPO, but do you really understand what that means?

IPO stands for Initial Public Offering. In Chinese, it is called “首次公开发行”. Simply put, it is the process by which a private company issues shares to the public for the first time, thereby becoming a listed company.

From a company’s perspective, when the initial investment from founders is insufficient to support rapid expansion, it needs to raise funds from the public. IPO is the most formal and efficient channel for this financing. Through an IPO, a company can raise large amounts of capital for debt repayment, expansion, or R&D.

From an investor’s perspective, an IPO represents a brand-new investment opportunity. High-quality company stocks that were once only accessible to venture capitalists and insiders are now open to retail investors. IPO new stock investments have thus become a hot pursuit for many investors.

What should you know before investing in Hong Kong IPOs?

Key steps in going public

Hong Kong IPOs generally go through these stages:

Preparation phase—The company needs to find sponsors, accountants, lawyers, and other professional intermediaries to form the underwriting team. This process may seem simple but directly impacts the efficiency and success rate of the listing.

Due diligence and audit—Intermediaries conduct a comprehensive review of the company’s finances, operations, and assets. Meanwhile, the company prepares key documents such as the prospectus. This stage is often the most time-consuming.

Regulatory filing—Submitting applications to the China Securities Regulatory Commission and the Hong Kong Stock Exchange, then waiting for acceptance and review feedback.

Roadshow and pricing—Company executives, along with the underwriting team, meet potential investors to showcase investment highlights, and finally negotiate and determine the issue price. This price is often the lowest.

Official listing and trading—Trading begins on the Hong Kong Stock Exchange.

Hard requirements for Hong Kong IPOs

To list in Hong Kong, a company must meet any one of these three standards:

Standard 1: Profit of at least HKD 20 million in the most recent year, with a total of no less than HKD 30 million over the previous two years, and a profit of no less than HKD 500 million at the time of listing.

Standard 2: Market capitalization of at least HKD 4 billion at listing, with revenue of no less than HKD 500 million in the most recent year.

Standard 3: Market capitalization of at least HKD 2 billion at listing, with revenue of no less than HKD 500 million in the most recent year, and total operating cash flow over the past three years of at least HKD 100 million.

These figures may seem large, but for high-quality enterprises, they are not insurmountable thresholds.

How to seize opportunities in US IPO investments?

Details of the US listing process

The steps for listing in the US are similar to Hong Kong but differ in execution details:

Choosing underwriters—The company hires an investment bank (usually top-tier) to lead the entire IPO process. The experience and influence of US investment banks often help the company achieve better pricing.

SEC filing—Submitting Form S-1 and related documents to the U.S. Securities and Exchange Commission, then undergoing a cycle of initial review, feedback, and re-review.

Roadshow and fundraising—Communicating with institutional investors across the US, finalizing the issue price and volume.

Listing and trading—Listing on the NYSE or NASDAQ.

The entire process typically takes 4-6 months.

Financial standards for US IPOs

To list on the NYSE, one of the following must be met:

Condition 1: Three-year pre-tax profit totaling at least USD 100 million, with at least USD 25 million in the last two years.

Condition 2: Global market value of at least USD 500 million, with revenue of at least USD 100 million in the past 12 months, and cumulative cash flow over the past three years of at least USD 100 million, with cash flow in the last two years not less than USD 25 million.

Condition 3: Global market value of at least USD 750 million, with an average annual revenue of at least USD 75 million over the past two years.

For NASDAQ, the requirements are more flexible, and satisfying any one of the following conditions suffices:

Condition 1: Pre-tax profit of USD 1 million in any two of the last three years, shareholders’ equity of at least USD 15 million, public market value of at least USD 8 million, and at least 3 market makers.

Condition 2: Shareholders’ equity of at least USD 30 million, operating for more than two years, public market value of at least USD 18 million, and at least 3 market makers.

Condition 3: Securities market value of at least USD 75 million, public market value of at least USD 20 million, and at least 4 market makers.

Condition 4: Total assets and revenue of at least USD 75 million in any two of the last three years, public market value of at least USD 20 million, and at least 4 market makers.

What makes IPO investing attractive?

Why participate in IPO investments

First major attraction: Entry at a low price for high-quality assets

Many star companies are still private, so retail investors have no chance to invest. But through an IPO, these high-quality targets that were once out of reach suddenly become accessible to all investors. More importantly, IPO prices are often the cheapest—this is a “first offering discount” actively provided by the company. Missing this price means paying a higher cost later if you want to buy in.

Second major attraction: High profit potential

Companies usually choose to go public when the market is strong and prospects look good. This means the probability of stock price appreciation after listing is relatively high. Coupled with the low entry price at IPO, early investors can realize substantial short-term gains.

Third major attraction: Fair information environment

When investing in IPOs, all investors access information mainly through the prospectus. This means large institutional investors do not have a significant informational advantage over retail investors, unlike in secondary markets. This creates a rare fair competition environment for retail investors.

Potential risks of IPO investing deserve attention

Risk 1: Company quality varies

Although companies can pass listing reviews, this does not guarantee they are high-quality investments. If you pick a fundamentally weak company, and large institutional investors start selling off, retail investors may get caught holding the bag because your liquidity and bargaining power are far inferior to institutions.

Risk 2: The listing price may already fully reflect positive factors

All the company’s highlights and growth expectations might already be priced in during IPO valuation. This limits your short-term profit space and may even lead to a correction.

Practical advice for investors

Participating in IPO investments requires establishing the right mindset and methodology:

Conduct thorough fundamental research—Before listing, carefully read the prospectus, understand the company’s business model, competitiveness, financial condition, and growth drivers. Don’t be misled by short-term hype.

Manage expectations and hold long-term—Don’t expect every new stock to double. Set reasonable return expectations, diversify your investments, and holding high-quality stocks long-term often yields better results than chasing short-term gains.

Pay attention to market rhythm—The IPO market has obvious cycles and volatility. Stay calm during hot markets, and consider downturns as good opportunities for deployment.

Adjust positions timely—Based on changes in the company’s fundamentals and market conditions, flexibly adjust your holdings. Don’t be trapped by sunk costs; be willing to cut losses.

Summary

IPO investing is both an opportunity and a challenge. For investors wanting to participate, it’s important to recognize the chance to buy quality assets at low prices, while also being aware of market fluctuations and company quality risks.

The key to successful IPO investing lies in: deeply understanding the companies you invest in, developing clear investment plans, managing risks well, and maintaining patience and rationality. Avoid chasing trends, blindly following others, or greed. Applying these principles will help you achieve long-term stable returns in this market.