By Scott Murdoch

(Reuters) -Hong Kong's equity capital markets activity roared back to life in the first half of 2025, driven by global investors sharpening focus on China as the city awaits the possible Shein initial public offering in the second half.

Big ticket capital raisings and a rush of "A to H" share deals, where companies already listed on mainland Chinese markets list in Hong Kong, helped revive flatlining markets and led to the strongest first half since 2021.

Fast fashion giant Shein is working to list in Hong Kong before the end of the year, Reuters reported in May, citing sources with direct knowledge of the matter.

A Shein listing would help Hong Kong re-establish its credibility as a global fundraising centre as a time of major volatility created by U.S. trade policy changes.

Hong Kong's Hang Seng Index is up 21.2% year-to-date, making it one of the best performing major markets in the world, despite the tariff negotiations between China and the United States.

"The new era has come which is a more divided world - I think that's reality we are facing," said James Wang, head of Asia ex-Japan equity capital markets at Goldman Sachs.

"Arguably, there are more investment opportunities. It’s a structural change and there is going to be capital outflowing from the U.S. and inflows into the Asian region."

Across Asia, including Japan, there was a 15.3% increase in total equity issuance in the first half to $116.2 billion, up from $100.7 billion in the same period last year, according to LSEG data.

There were $12.8 billion of combined proceeds from IPOs and second listings in Hong Kong in the first half, up more than eight-fold on the same time last year, the data showed.

But the $2.9 billion raised from IPOs in Hong Kong during the half, while up from last year's $1.7 billion, remained well below the $8.5 billion raised on the Nasdaq in New York, according to LSEG data.

Despite the Hang Seng's rally, investors remain nervous buying into IPOs as volatility continues to rack global markets.

"An A to H listing is like a follow on, there is a price benchmark, but for standalone IPOs where you don't have that price benchmark," Wang said.

"The last round's valuation is not a benchmark. For people to feel comfortable to write a large ticket they need to get comfortable the market is there to support them, not just that they feel the valuation is OK."

Global investors buying back into China and participating in major deals like battery maker CATL's $5.3 billion listing and electric vehicle makers Xiaomi and BYD raising a combined $11 billion helped drive equity transactions, dealmakers said.