A surge of Chinese AI companies raising equity in Hong Kong is contributing to the stock market's lacklustre performance, with the Hang Seng index declining close to 3 per cent. Investors warn that initial public offerings are pulling cash out of established names, even as equity issuance in the Asian financial hub surpasses last year's total. "Hong Kong's market has enough turnover to process a busy IPO calendar, but new deals are competing directly with existing China exposure inside portfolios," said Sat Duhra, an Asia ex-Japan portfolio manager at Janus Henderson Investors. For many Chinese companies, issuing equity in Hong Kong is one of their only funding options as credit growth has slowed on the mainland. "Right now banks are not lending money," said Hao Hong, chief investment officer at Lotus Asset Management.

More than half of the companies that listed in Hong Kong in the third quarter have seen their share prices fall, tracking a global tech sell-off. "The IPO market became a bit of a momentum trade," said Nicholas Chui, a portfolio manager at Franklin Templeton. "Anything that came into the market in the first quarter or the second quarter, people just said it was free money . . . That has largely evaporated.".