The semi-annual review results for Stock Connect eligibility will be officially released in early September, placing several small-to-mid-cap Hong Kong-listed companies at risk of removal. Among them, BRETON (1333.HK), an electric construction machinery firm listed in May 2025 and included in the program in September, faces a high probability of exclusion.
To preserve its Stock Connect status, the company has implemented a series of stabilization measures over the past few months, including converting domestic shares to H shares (full circulation), extending the lock-up period for major shareholders, and increasing executive shareholdings. However, due to the late implementation of these actions, their impact on the index review cycle has been limited. The market widely expects the company will likely still be removed. A small placement launched in July is also seen as an emergency financing move to capitalize on the remaining liquidity window before its Stock Connect status expires.
The adjustment of Stock Connect targets is based on the Hang Seng Composite Index's semi-annual review, with the assessment cut-off date on June 30 and results released in early September. The Hang Seng Index series has clear rules for calculating market capitalization: only H shares are included in the calculation of market capitalization, while domestic shares that have not undergone full circulation conversion are excluded.
Based on the shareholding structure in the prospectus, BRETON had 63.54% of its share capital counted as circulating H-share market cap at the time of listing. The remaining 36.46% in domestic shares maintained their original form and were temporarily excluded from the calculation. The company was successfully included in the Stock Connect program in September 2025, buoyed by the initial listing buzz. However, its stock price has since declined continuously, shrinking its circulating market cap and gradually approaching the threshold for index removal.
Where to Focus on the Index Review
To boost its circulating market cap base, the company pushed forward the conversion of remaining domestic shares into full circulation. On May 20, 2026, a total of 106 million domestic shares were officially converted into H shares, representing 27.24% of total share capital, which theoretically expands the share base included in market cap calculations. However, the significant drawback is that with only 40 days remaining until the June 30 cut-off for the semi-annual review, the Hang Seng Composite Index uses the average market cap over the past 12 months as its ranking basis. The newly added circulating shares can only contribute to market cap over an extremely short period, making it difficult to meaningfully improve the 12-month average. The room for corrective action is limited.
Stabilization Measures Like Executive Buybacks and Extended Lock-Ups Prove Ineffective as Share Price Continues to Fall
The full circulation conversion not only failed to lift the market cap or improve the index review ranking but also introduced unexpected selling pressure. The market had already priced in the supply of shares from the original lock-up expiration on May 6, leading to a pronounced early reaction: the stock price fell sharply by 14.43% to 21 Hong Kong dollars the day before the expiration, and continued to drop 17.52% to 17.32 Hong Kong dollars on the expiration day itself, as funds fled preemptively to avoid risk.
However, the market had not fully anticipated the additional selling pressure from the conversion of 27.24% of total share capital—involving 23 shareholders, including several financial venture capital firms—into circulating H shares on May 20. Once this batch of shares was converted, it became freely tradable, constituting a potential extra overhang. To counter the selling pressure and stabilize market confidence, the company rolled out a series of coordinated stabilization measures.
On April 28, 2026, the company announced that its controlling shareholder and parties acting in concert voluntarily extended the lock-up period, originally set to expire on May 6, by six months to November 6, 2026, covering the half-year review period and signaling a long-term holding commitment. Between May and June, the company's chairman and controlling shareholder, Chen Fangming, made five separate purchases of H shares in the secondary market, accumulating a total of 1.333 million shares, demonstrating confidence in the company's development with real capital.
Despite this series of stabilization efforts, the stock price failed to show a significant positive response. By the cut-off date of June 30, BRETON's closing price was only 16.48 Hong Kong dollars, corresponding to a total market cap of 6.421 billion Hong Kong dollars. This represents a decline of over 40% from the 28 Hong Kong dollar close at the beginning of the year, with total market cap shrinking from over 10 billion Hong Kong dollars to under 7 billion. Even with the expanded share base after full circulation, it could not offset the market cap erosion caused by the persistent stock price decline, and the company failed to securely meet the inclusion threshold for the Hang Seng Composite Index.
Last Placement in the Liquidity Window Drains Remaining Cash
Just as the market was generally expecting BRETON to be removed from Stock Connect, the company announced a placement on July 26. The plan is to place up to 3.05 million new H shares at a price of 10.08 Hong Kong dollars per share, raising total proceeds of approximately 30.7 million Hong Kong dollars. After deducting expenses, the net proceeds are expected to be about 29.5 million Hong Kong dollars. The placement price represents an 8.11% discount to the closing price of 10.97 Hong Kong dollars on July 24 and a substantial 19.02% discount to the average price over the preceding five trading days.
This small-scale placement is an emergency financing move by the company to capture the last remaining liquidity window before its Stock Connect status formally expires. Once officially removed from the program in early September, mainland Chinese investors will be unable to trade the company's shares through the Stock Connect channel. This would trigger a cliff-edge drop in liquidity, making future refinancing significantly more difficult and costly. For a new energy equipment company still in its business expansion phase requiring continuous capital investment, the loss of convenient Stock Connect financing access is a significant blow.
Looking at the placement size, issuing only 3.05 million shares to raise less than 30 million Hong Kong dollars is far smaller than the company's November 2025 placement of 250 million Hong Kong dollars. This also reflects the limited current market capacity, forcing the company to stockpile cash as much as possible within a narrow liquidity window. As of July 29, the company's stock price was 11.47 Hong Kong dollars, corresponding to a total market cap of 4.469 billion Hong Kong dollars, a decline of nearly 60% from the start of the year.
Final Thoughts
BRETON's battle to defend its Stock Connect status is a typical example of the survival challenges faced by small-to-mid-cap hard-tech companies in Hong Kong. In an effort to maintain financing convenience and liquidity post-listing, the company resorted to measures like full circulation conversion, extended lock-ups, and executive buybacks to try and retain its index inclusion eligibility. However, due to the late start of these actions and the persistent decline in its stock price, it ultimately could not reverse the trend of being removed.
The potential selling pressure from full circulation and the weak effectiveness of stabilization measures also highlight the liquidity dilemma for small-cap stocks in Hong Kong. Once market cap falls below the threshold, it is easy to fall into a negative spiral: falling stock prices lead to lower market cap, which triggers index removal, causing liquidity to dry up, making financing difficult, and further pressuring the stock price. Once the Stock Connect adjustment list is officially released in early September, BRETON's liquidity and financing capabilities will face a real test. Whether the company can repair its market cap through fundamental business improvement and potentially rejoin Stock Connect in the future will depend on the commercialization progress of its new energy construction machinery business.