The Hong Kong stock market in 2026 presents a puzzling paradox. While IPO fundraising in the first half of the year surged 92% year-on-year, indicating a hot primary market, the secondary market bled heavily. The Hang Seng Tech Index plunged 9.5% in March alone, and the short-selling ratio hit a historical extreme of 28.91% in May, with persistent foreign capital outflows. How can prosperity and decline coexist in the same market? Understanding this paradox requires examining an underlying variable often overlooked by most investors: the quiet shift in investment banks' pricing power. A special campaign initiated by Hong Kong's Securities and Futures Commission in 2026, dubbed "FUSE," has disrupted the pattern of Chinese investment banks dominating from 2023 to 2025. Foreign institutions are now quietly reclaiming pricing power in Hong Kong's equity capital markets. However, this has evolved into a nuanced situation where foreign banks "hold underwriting positions but withdraw capital," directly impacting all investors holding Hong Kong tech stocks.

A Major Reshuffle in Investment Banking Seats

In 2025, CITIC Securities topped the Hong Kong investment banking league with total underwriting volume exceeding HK$90 billion, seemingly cementing the dominance of Chinese institutions. However, the situation changed abruptly in March 2026. The SFC, in conjunction with the Independent Commission Against Corruption, launched a special enforcement action codenamed "FUSE," targeting grey channels for cross-border placement and localized trading models used by Chinese institutions. CITIC Securities was among those under investigation. Simultaneously, Wuji Capital, which focused on the hard tech sector and supported financing for several sanctioned companies, was also implicated, casting a shadow over its related project financing prospects. Under the SFC's regulatory crackdown, CITIC Securities' IPO sponsorship volume in the first half of 2026 fell to fourth place in the market, with its placement and follow-on financing ranking dropping to ninth. The resulting power vacuum was quickly filled by foreign banks. According to Hong Kong Exchanges and Clearing data, the top three underwriters by follow-on financing volume in the first half were: Bank of America Merrill Lynch (HK$12.546 billion), China International Capital Corporation (HK$11.647 billion), and Morgan Stanley (HK$11.358 billion). In the recent placement by Contemporary Amperex Technology Co., foreign banks occupied three of the four global coordinator seats. The judgment from the China Institute of Finance and Capital hit the mark: the "FUSE" action pressed the pause button on the business of Chinese investment banks, providing foreign institutions a crucial opportunity to completely shed their marginalized role of the past few years.

The Liquidity Trap of Foreign Banks "Holding Positions Without Investing"

Why is the battle for pricing power so critical? For technology companies, follow-on financing is a more vital lifeline for development than IPOs. Technological innovation is inherently characterized by high investment, long cycles, and high risk. Sustained follow-on financing capability directly determines whether a company can remain well-equipped amidst competition. Whoever controls the pricing logic of follow-on financing holds the key to the growth and expansion of tech firms. The return of foreign institutions provides companies with international endorsement and higher market recognition—something issuers welcome. However, a dangerous crack is forming. Under the dual pressures of high US Treasury yields and the powerful attraction of US AI stocks, the Nasdaq raised $129.3 billion in the first half of 2026, a surge of over 500% year-on-year. In contrast, Hong Kong's follow-on financing volume shrank by 34.38% during the same period. Global capital is visibly migrating to US markets. This has led to a subtle yet dangerous split in the role foreign investment banks play in Hong Kong: they are aggressively securing positions in underwriting business while simultaneously withdrawing long-term capital. This contradictory pattern has triggered a chain reaction in the market. The Hang Seng Index plunged 6.92% in March, with the Hang Seng Tech Index's decline widening to 9.5%. Short-selling sentiment remained high from May to June, with the short-selling amount on the final trading day of June 30 reaching HK$57.52 billion, its ratio stably above the 20.5% warning level. Tech stocks exhibited a K-shaped divergence. A speck of dust from the era can be a mountain on a company's head. As foreign investment banks gain a say in placement pricing, an unavoidable question arises: to quickly complete placements and lock in underwriting fees, foreign banks often tend to price offerings with significant discounts to attract buyers. However, large discounts directly dilute the equity of existing shareholders and may even drag down share prices. Data supports this concern. In the first half of 2026, nearly 30 follow-on financing projects exclusively led by foreign banks (with no participation or nominal involvement from Chinese banks) saw their share prices decline to varying degrees after placement completion. For instance, Refire Group's share price fell by approximately 60%, while Kingboard Laminates Holdings dropped by about 40%. A structural dilemma, where foreign banks dominate pricing but do not invest to support prices, is profoundly affecting every investor holding Hong Kong tech stocks.

Key Reference Points for Investors

Looking forward, the "FUSE" regulatory enforcement and the resulting stratified landscape—with foreign banks leading and Chinese banks' business contracting—are likely to persist for some time. With the landscape reshaped, investors need to recalibrate their cognitive coordinates. As foreign banks return to the primary role of global coordinators, the valuation reference framework for Hong Kong tech stocks will align more closely with international markets, rather than being solely driven by southbound capital sentiment. This means traditional Hong Kong stock investment strategies need to incorporate a more global perspective. While the split pattern of "business positioning but capital departure" persists, abnormal spikes in the short-selling ratio often provide earlier risk warnings than the index itself. Tracking foreign capital flows and short-selling dynamics becomes a key tool for identifying potential market tops and bottoms. Notably, the continued explosive growth of the AI hardware industry is the most significant countervailing variable to watch currently and could become a "ballast stone" for Hong Kong's financing ecosystem. If the AI hardware boom cycle continues, it will provide strong support for Hong Kong's financing environment, and Chinese investment banks may also find windows for a tactical rebound. In summary, the Hong Kong stock market is undergoing a profound transformation reshaped by regulation and global liquidity shifts. The battle for pricing power is at the core of this change. The story of Hong Kong stocks in 2026 is not just a report card of IPO prosperity, but a power struggle over who gets to price China's highest-quality technology assets. And this struggle has only just begun.