The Hong Kong stock market rally faces a $25 billion test ahead

Hong Kong's sharp equity rebound is about to hit a critical phase, with a wave of lockup expiries threatening to inject volatility into the market and tempting early investors to cash out.

Between now and December 31, selling restrictions will lift for early backers, management teams and controlling shareholders at 28 companies that went public in the city over the past year.

Based on Tuesday's closing prices, this could release roughly HK$193.8 billion ($24.9 billion) worth of shares, according to Bloomberg data.

The surge in impending unlocks is a direct consequence of Hong Kong's standout year for IPOs. But the flipside is rising supply hitting the market at a moment when global sentiment has cooled.

The Hang Seng Index, despite a 29% gain this year, is headed for its steepest weekly drop in a month as traders react to US policy uncertainty and geopolitical frictions between China and Japan.

"Year-end lockup expiries are a meaningful risk for Hong Kong stocks," Ravi Wong, first vice president at Yan Yun Family Office (HK) Ltd, told Bloomberg. "After such strong gains, it's natural for investors to book profits, whether individually or across the wider market."

Hong Kong is still poised to close 2025 with its strongest IPO fundraising in four years, with total proceeds likely exceeding $40 billion, Bloomberg Intelligence projects.

The 28 companies with upcoming unlocks have seen their Hong Kong-listed H-shares jump an average 95% since listing. The standout performer include TransThera Sciences Nanjing Inc., which has soared around 1,440% this year.

Pressure may be sharper for companies that are also traded as A-shares in mainland China and whose Hong Kong shares currently trade at a premium, said Kenny Ng of China Everbright Securities .

Battery giant CATL and drugmaker Jiangsu Hengrui Pharmaceuticals remain among the names whose H-shares command higher valuations than their onshore counterparts.