The bourse has be­come a mag­net for main­land com­pa­nies look­ing to list

China Daily (Hong Kong) - - 20TH ANNIVERSARY OF HKSAR - By DUAN TING in Hong Kong tingduan@chi­nadai­lyhk.com

The un­stop­pable wave of Chi­nese main­land en­ter­prises that have headed south in the past 20 years, swarm­ing the Hong Kong stock mar­ket and cat­a­pult­ing mar­ket cap­i­tal­iza­tion to record highs, has led to a his­toric re­mak­ing of the lo­cal bourse.

The scram­ble for funds in the SAR through ini­tial pub­lic of­fer­ings (IPOs), along with the enor­mous tide of main­land cap­i­tal flood­ing the city’s se­cu­ri­ties mar­kets, has been im­mea­sur­ably pro­pelled by the coun­try’s open­ing-up poli­cies and the in­sa­tiable urge of main­land busi­nesses to get onto the world stage.

The fig­ures that have emerged since 1997 have been as­tound­ing. The num­ber of main­land en­ter­prises that have gone pub­lic in Hong Kong has gone through the roof, hav­ing sky­rock­eted from a minis­cule 101 in 1997 to well past 1,000 by last year — more than half the to­tal num­ber of com­pa­nies listed in the SAR — with main­land com­pa­nies’ mar­ket value hav­ing es­ca­lated from just 20 per­cent to more than 60 per­cent of the city’s to­tal mar­ket cap­i­tal­iza­tion since the handover.

And, in the words of Charles Li Xiao­jia, chief ex­ec­u­tive of Hong Kong Ex­changes and Clear­ing Ltd (HKEx) — the city’s bourse op­er­a­tor — Hong Kong has all it needs to at­tain much of the ac­co­lades it de­serves in the com­ing two decades — evolv­ing from be­ing the main­land’s fundrais­ing cen­ter into the na­tion’s global wealth man­age­ment hub, top off­shore risk man­age­ment cen­ter and global as­set pric­ing pivot.

“Hong Kong has de­vel­oped from sim­ply a re­gional mar­ket with re­gional com­pa­nies listed on the ex­change for lo­cal in­vestors and lim­ited for­eign in­vestors to an in­ter­na­tional fi­nan­cial cen­ter in the past two decades. It’s at­tract­ing not just in­ter­na­tional but also main­land funds.”

What has trans­formed Hong Kong into a world fi­nan­cial cen­ter, Li said in an in­ter­view with Jef­frey Garten of the Yale School of Man­age­ment in 2013, was the abil­ity of both the city’s and the main­land’s reg­u­la­tory au­thor­i­ties to make de­ci­sions to en­cour­age the main­land’s State- owned com­pa­nies to float in the SAR.

Work­ing to­gether, both sides came out with the H-share regime — a spe­cial set of reg­u­la­tions that ini­tially al­lowed State-owned en­ter­prises to list in Hong Kong, gov­erned by in­ter­na­tional stan­dards. It trig­gered a mas­sive flood of list­ings of State-owned com­pa­nies, fol­lowed by those in the pri­vate sec­tor, us­ing the city as the first stop in their global as­pi­ra­tions.

Qing­dao, Shan­dong province-based Ts­ing­tao Brew­ery Co Ltd — the main­land’s sec­ond­largest brew­ery after Bei­jing­based China Re­sources Snow Brew­ery Ltd — fired the first salvo in 1993 by go­ing pub­lic on the Hong Kong stock ex­change as the first H-share en­ter­prise.

Li told Garten in the 2013 in­ter­view the main­land was still an econ­omy lack­ing com­pany or se­cu­ri­ties laws, but des­per­ately needed cap­i­tal and a way to re­form its Sta­te­owned sec­tor.

To­day, main­land com­pa­nies are play­ing a much more vi­tal role in Hong Kong’s cap­i­tal mar­kets.

Ac­cord­ing to the HKEx data, the num­ber of lo­cally listed com­pa­nies had soared from 658 in late 1997 (with only 101 listed main­land en­ter­prises then), rep­re­sent­ing 15 per­cent of the to­tal, to ap­prox­i­mately 2,009 at the end of March this year. Sta­tis­tics show there were 1,013 main­land en­ter­prises listed in Hong Kong as of March this year, ac­count­ing for 50.4 per­cent of the to­tal num­ber of listed en­ter­prises.

To­tal mar­ket cap­i­tal­iza­tion had mul­ti­plied ap­prox­i­mately eight times — from HK$3.2 tril­lion at the end of 1997 to HK$27.2 tril­lion by March this year, with main­land en­ter­prises ac­count­ing for 63.7 per­cent of to­tal mar­ket cap­i­tal­iza­tion at the end of 2016, com­pared to less than 20 per­cent in 1997.

To­tal funds raised through IPOs, along with funds raised from 1997 up to April 30 this year, reached HK$8.7 tril­lion, with main­land en­ter­prises in­clud­ing H-shares, red-chips and pri­vate busi­nesses, hav­ing se­cured HK$5.4 tril­lion, or 62 per­cent of the to­tal. The av­er­age daily turnover on the lo­cal bourse had grown from HK$15.5 bil­lion to HK$82.1 bil­lion.

Ac­cord­ing to Bloomberg, nine out of 10 IPO un­der­writ- ers are from the main­land, with China Con­struc­tion Bank Corp, Haitong Se­cu­ri­ties Co and Agri­cul­tural Bank of China Ltd head­ing the list. In 1997, Mor­gan Stan­ley, HSBC Hold­ings and Mer­rill Lynch were the lead­ing IPO un­der­writ­ers among the top 10, which in­cluded only lo­cal and in­ter­na­tional com­pa­nies.

Hu Zhanghong, chair­man and chief ex­ec­u­tive of­fi­cer of CCB In­ter­na­tional (Hold­ings) Ltd, told China Daily that Hong Kong’s sta­tus as an in­terna- tional fi­nan­cial cen­ter has been fur­ther strength­ened after the handover, es­pe­cially over the last decade. The city has at­tracted enor­mous main­land cap­i­tal and has be­come the top prior des­ti­na­tion for main­land en­ter­prises seek­ing to raise funds off­shore. “To­day’s Hong Kong is the ‘su­per-con­nec­tor’ be­tween the main­land and the rest of the world. It has also been evolv­ing into a strate­gic plat­form for ren­minbi in­ter­na­tion­al­iza­tion and the Belt and Road Ini­tia­tive,” he said.

Hong Kong gov­ern­ment sta­tis­tics show that, by the end of last year, main­land banks’ as­sets in Hong Kong had made up ap­prox­i­mately 33 per­cent of the lo­cal bank­ing sys­tem, com­pared with 13 per­cent in 1997. Cur­rently, al­most all Sta­te­owned banks and na­tional joint-eq­uity com­mer­cial banks have branches in Hong Kong.

Ac­cord­ing to the Hong Kong Chi­nese En­ter­prises As­so­ci­a­tion, Hong Kong cur­rently hosts nearly 4,000 main­land com­pa­nies — the num­ber hav­ing more than dou­bled from 1,800 in 1997, with to­tal as­sets up 22 times to al­most HK$20 tril­lion.

Yim Fung, chair­man and chief ex­ec­u­tive of­fi­cer of Hong Kong-based Guo­tai Ju­nan In­ter­na­tional Hold­ings Ltd, said with the col­lapse of the city’s largest bro­ker­age Peregrine In­vest­ment Hold­ings Ltd in early 1998, the China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion (CSRC) — the main­land’s se­cu­ri­ties watch­dog — had been en­cour­ag­ing fi­nan­cial en­ter­prises to in­no­vate and prod­ding them to “go out” by 2006. As a re­sult, the num­ber of main­land-owned bro­ker­ages in Hong Kong had sur­passed that of their lo­cal and for­eign peers in re­cent years.

Amid its as­tro­nom­i­cal growth, the Hong Kong stock mar­ket had over­come a host of fi­nan­cial storms, such as the 1997 Asian fi­nan­cial cri­sis, the in­ter­net bub­ble burst in 2000, the SARS (Se­vere Acute Re­s­pi­ra­tory Syn­drome) out­break in 2003 and the global fi­nan­cial tsunami in 2008. Mar­ket watch­ers said Hong Kong had demon­strated its tenac­ity in the face of th­ese crises and kept losses to the min­i­mum.

The Hang Seng In­dex — the barom­e­ter for the lo­cal stock mar­ket’s per­for­mance — had stood at 15,196 points on June 27, 1997 — the last trad­ing day be­fore the handover. By Dec 29, 2006, it had sur­passed the 20,000-point bar­rier for the first time be­fore hit­ting a record high of 31,958 on Oct 30, 2007.

Cheah Cheng Hye, co-chief in­vest­ment of­fi­cer of as­set man­age­ment com­pany Value Part­ners, agreed that Hong Kong’s over­all mar­ket per­for­mance is tied to the growth of China’s jug­ger­naut econ­omy.

He said Hong Kong listed stocks are still rel­a­tively cheap, trad­ing at about 14 times its earn­ings ca­pac­ity, adding that for main­land com­pa­nies with dual list­ings, there’s an av­er­age dis­count of 25 per­cent, for Hong Kong listed shares, they’re a good buy com­pared with the shares listed on the main­land. “In the long term, Hong Kong’s cap­i­tal could be­come very ex­cit­ing due to the po­ten­tial of­fered by the Belt and Road projects, and the de­vel­op­ment of the Pearl River Delta eco­nomic zone,” he said.

To­day’s Hong Kong ... has also been evolv­ing into a strate­gic plat­form for ren­minbi in­ter­na­tion­al­iza­tion and the Belt and Road Ini­tia­tive.” the value of to­tal mar­ket cap of Hong Kong eq­uity mar­ket as of March this year

ED­MOND TANG / CHINA DAILY

By the end of March this year, there were 1,013 main­land en­ter­prises listed in Hong Kong, ac­count­ing for 50.4 per­cent of the to­tal num­ber of listed en­ter­prises, and 63.7 per­cent of to­tal mar­ket cap­i­tal­iza­tion.

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