The Hong Kong Stock Exchange (HKEX), home to the Jardine Group for two centuries, is thriving compared to the Singapore Exchange S68 (SGX), where ironically five Jardine Group entities are listed, including Jardine Matherson and Hongkong Land.
Although Asia’s IPO market, in particular Singapore, continues to exhibit softness this year — largely due to persistent global economic uncertainties, inflationary pressures and geopolitical tensions that have kept investor confidence at bay — Hong Kong stands out as a bright spot. As at May this year, HKEX had processed a total of 159 IPO applications, with 37 successfully listed. Just as it was with the Jardine Group in the 19th century, Hong Kong remains a gateway to China for investors through H-shares and red chips.
Amid a cautious landscape, Hong Kong has managed to attract several high-profile IPOs, bolstered by its strategic position vis-a-vis China and its robust financial infrastructure. Among others, HKEX saw new listings in sectors such as technology, finance and green energy.
HKEX had a “busy and productive” 2023, too, on the back of new initiatives. This included the opening of new offices in New York and London to be closer to its clients, aside from a focus on derivatives, fixed-income and currency products which has been instrumental in further diversifying its business and product ecosystem. Last year, the stock exchange welcomed 64 new listings.
These new initiatives are supported by HKEX’s strong financial position, which allows the bourse to reinvest in its business, says its head of equities and product development Brian Roberts. At a briefing in conjunction with the Asian Financial Forum 2024, Roberts explains that the bourse has actively reinvested into its technology and infrastructure that facilitates efficient trading, clearing and risk management.
“Ultimately, what we strive to do is build ‘the marketplace of the future’. There are three areas of focus for this, which is connecting China and the world, connecting capital with opportunities and connecting today with tomorrow,” says Roberts.
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This is amid the need for the stock exchange to further spur market interest, as it continues to see privatisations driven by downbeat prospects in mainland China. In the first quarter of the year, dealmakers executed U$4 billion ($5.4 billion) worth of take-private transactions involving Hong Kong-listed firms.
Distinctive periods
HKEX’s plans build on its rich heritage, whose roots go as far back as the 1890s before becoming what it is known today following a merger of two exchanges in 1947 in an effort to re-establish the stock market after WW2. According to Roberts, there are three distinct periods that have shaped HKEX’s current relevant identity. One significant era was from the early 2000s to the 2010s, when Chinese companies began seeking international capital.
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At the end of 2010, there were 592 mainland Chinese enterprises listed on its Main Board and Growth Enterprise Market (GEM), constituting 57% by market capitalisation and 66% by annual turnover value. Total equity funds raised during the year stood at HK$858.7 billion, with 113 newly listed companies on the Main Board and GEM raising HK$449.5 billion. Both the funds raised by IPOs and the total equity funds raised in the year were record highs.
The following few years also marked one of the distinct periods for the bourse, starting from 2012. Roberts describes this as the globalisation of HKEX, when it started developing its mutual market access programme Stock Connect. Officially launched in November 2014, the Hong Kong-Shanghai Stock Connect expanded to Hong Kong-Shenzhen Stock Connect in December 2016, opening up onshore markets for international investors and Hong Kong markets for mainland Chinese investors.
Eventually, the Connect universe expanded into fixed income with the launch of Bond Connect, linking the onshore fixed income market via a Northbound channel with Hong Kong before expanding to include a Southbound channel in 2021.
The last distinctive phase Roberts highlights is the internationalisation era of HKEX. In 2017, as its business and clientele became more globalised, the bourse started making a more concerted effort to have an international presence. In 2017, HKEX opened its first overseas office in Singapore, followed by the aforementioned offices in London and New York.
“We have also been embarking on an internationalisation of our product lineup. A lot of our products have always been Hong Kong and China-centric. But we have reached partnerships with MSCI and now we offer a lot of financial derivatives on underlying assets outside of just Hong Kong and China, primarily in the trade Asia theme. Not to mention, we have a very robust ETF market that provides access to global capital markets products,” Roberts adds.
Meeting evolving demand
In its journey to become the marketplace of the future, Roberts says HKEX will continue strengthening its role as a “super connector”, with plans to enhance its ongoing Connect programmes to provide investors with new tools and capabilities to manage their China investments.
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The bourse is also focusing on maintaining a vibrant IPO market, ensuring that it is bringing in new and interesting companies to list. Acknowledging that there is a general decline in its IPO value partly due to negative sentiment surrounding Chinese companies, HKEX is optimistic that companies would look at raising capital once the sentiment returns.
To facilitate this, the stock exchange had been very active in reforming its listing regime, which had been focusing on traditional economies. Recognising the big potential of growth among newer economies, HKEX announced Chapter 18A of its listing rules in 2018, allowing pre-revenue biotechnology companies to list. This has since been a big source of new listings, accounting for about 8% of HKEX’s IPOs over the last several years, says Roberts.
HKEX also introduced the new listing regime for special purpose acquisition companies (spacs) around the same time as SGX in 2021, drawing a total of five black-check companies to list. Ongoing de-spac transactions involve Aquila Acquisition Corp and steel trading company ZG Groups, as well as Vision Deal HK Acquisition and gamer-centric networking platform Quwan Holding. The remaining three spacs have yet to share their merger plans.
In 2023, the HKEX published Chapter 18C of its listing rules, which focuses on “specialist technology companies” such as those within energy transition or plant-based products sectors. Last month, Tencent-backed AI drug researcher QuantumPharm became the first company to list under the 18C regime.
On the back of growing its market, HKEX has also issued guidelines for various products — one of them being spot crypto funds. The bourse issued guidelines for the approval of such products in 2023. In April, HKEX saw the launch of six spot Bitcoin and Ethereum ETFs issued by three Chinese firms, China Asset Management, Bosera Asset Management and Harvest Global Investments B73 . With this, Hong Kong became the first in Asia to allow retail investors to trade the cryptocurrencies at spot prices.
Roberts stresses that the bourse is constantly reinvesting in its infrastructure, which is going to be paramount as it moves into the future with digitalisation and tokenisation technologies.
Separately, in May this year, Bloomberg reported that China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via Stock Connect. According to the report, regulators including the China Securities Regulatory Commission and the State Taxation Administration are reviewing a plan submitted by Hong Kong to waive the 20% tax on dividends from Hong Kong stocks bought via Stock Connect.
As the bourse continues to work on developing its products and services, Robert notes the importance of casting its net wide, putting as many products into the market as possible. “We are cognisant that there is a low probability of success in some of the products that are brought out. But this is the risk we take in seeking to meet clients’ evolving demands.
“There are going to be things that are being put out there that don’t necessarily work, yet we have to be able to put these products out as we try to understand what our clients are looking out for. Ultimately, this, together with our footprint expansion, enriches our overall trading ecosystem and brings more capital into this market,” says Roberts.
