FOR LOVE OF LIST­INGS

HKEX Chair­man Chow Chung-kong is ea­ger to see mar­ket ex­pan­sion and the ex­change ex­pand its roles.

The Peak (Hong Kong) - - The Brief -

Chow Chung-kong, chair­man of Hong Kong Ex­changes and Clear­ing Ltd (HKEX) since 2012, loves his­tory. Read­ing books about his­tory how he likes to re­lax, he says, de­spite his for­mal train­ing in chem­i­cal en­gi­neer­ing in the US, and a re­lent­less fo­cus on Hong Kong’s busi­ness fu­ture. Chow, born and raised in Hong Kong, has spent the past 25 years working in se­nior roles in the US, the UK, Ja­pan and Aus­tralia, in a wide range of sec­tors. He as­serts that this broad ex­pe­ri­ence in busi­ness makes him suited to run HKEX, de­spite the lack of prior ex­pe­ri­ence in bank­ing. Among those ex­pe­ri­ences was an eight-year run as chief ex­ec­u­tive of the MTR Cor­po­ra­tion, start­ing in 2003. In 2007, Chow led the MTR’S merger with the 100-year old Kowloon-Canton Rail­way Cor­po­ra­tion. The love of the big M&A play found its way into Chow’s chair­man­ship of the ex­change al­most im­me­di­ately. Just two months af­ter join­ing HKEX, he led the bourse on its first over­seas takeover to buy the Lon­don Metal Ex­change (LME), the world’s largest base met­als ex­change, for HK$16.94 bil­lion. Then, there was the launch of the two stock con­nect schemes with Shang­hai and Shen­zhen. Di­ver­si­fi­ca­tion through ac­qui­si­tion is a ten­ant of his busi­ness phi­los­o­phy. “A merger, if you can han­dle it prop­erly, is a use­ful tool for busi­ness suc­cess,” he says. The LME is over 135 years old and it has the sys­tems and plat­form to set the price and stan­dard of com­modi­ties trad­ing and the global ware­hous­ing to do phys­i­cal de­liv­ery. “Buy­ing the LME is a short cut for the HKEX to ex­pand into com­modi­ties, which is im­por­tant to bring in new rev­enue to the ex­change,” Chow ar­gues. Asked about the changes in Hong Kong over the past 20 years, Chow re­marks on the rapid growth of busi­ness, thanks largely to China. “The se­cu­ri­ties mar­ket in Hong Kong and the HKEX has gone a long way in the past twenty years and it is grow­ing much faster than other sec­tors and is bet­ter than ex­pected.” To­tal mar­ket cap­i­tal­i­sa­tion has risen eight-fold to HK$27 tril­lion, up from HK$3 tril­lion in 1997.

The fi­nan­cial in­dus­try rep­re­sents 18 per cent of GDP of Hong Kong, up from about 10.4 per cent in 1997. The av­er­age daily turnover now stands at HK$82.1 bil­lion, up from HK$15.5 bil­lion in 1997.

But it is the IPO mar­ket that drives it all. Hong Kong ranked num­ber one in IPO funds raised from 2009 to 2011, and in 2015-2016.

The chal­lenge is at­tract­ing more new econ­omy (tech) com­pa­nies to list here as Chow says that many IPOS in Hong Kong are from tra­di­tional in­dus­tries. On June 16, the HKEX is­sued a con­sul­ta­tion pa­per re­gard­ing a pro­posal to set up a new third board with flex­i­ble reg­u­la­tion to at­tract start-ups and those firms us­ing dual share­hold­ing struc­tures, such as Google or Face­book. The pro­posed third board, if sup­ported by the mar­ket, will be launched in 2018.

Chow says the bourse is do­ing ev­ery­thing it can to win mega IPOS, such as the Saudi Aramco list­ing, ex­pected to be the world’s big­gest, next year. Since the LME ac­qui­si­tion, the com­mod­ity busi­ness is an­other area of ex­pan­sion for Chow, who says that com­modi­ties in­come is now 14 per cent of to­tal in­come for HKEX (there was none be­fore the takeover). In­come from stocks now rep­re­sents 24 per cent, down from 56 per cent in 2000, when the HKEX was set up by merger the stock and fu­tures ex­changes and their re­lated clear­ing houses. The ex­change has launched six metal prod­ucts in Hong Kong and plans for adding two gold con­tracts in July while it is in the process of launch­ing a com­modi­ties plat­form in Qian­hai.

“It is not easy to ex­pand into the com­modi­ties mar­ket. How­ever, since main­land China is the largest con­sumer of many com­modi­ties, the room for fu­ture growth in this area would be huge. This will be a ma­jor de­vel­op­ment for the HKEX in [the] fu­ture,” Chow says. “The HKEX needs to di­ver­sify more in com­modi­ties trad­ing, clear­ing and other new busi­ness lines. Like any other com­mer­cial com­pany, HKEX will be suc­cess­ful only if it can keep on seek­ing new busi­ness lines and new in­come.”

Chow is keen to see po­lit­i­cal sta­bil­ity re­turn to Hong Kong, be­liev­ing that po­lit­i­cal ex­trem­ism only hurts the con­fi­dence of main­land Chi­nese and for­eign in­vestors in Hong Kong. The con­cern about Chi­nese sen­ti­ment is un­der­stand­able, con­sid­er­ing China’s cap­i­tal mar­ket open­ing has been the key to suc­cess for HKEX since 1997. Among the HK$3.269 tril­lion raised from new list­ings over the past twenty years, 78 per cent of those list­ings were main­land Chi­nese firms. This role will con­tinue as Chow be­lieves the Belt and Road Ini­tia­tive, China’s vast plan for in­fra­struc­ture in­vest­ment across Asia, will boost list­ings in HKEX amid higher fund rais­ing needs.

An­other role Chow sees for HKEX is that of wealth man­age­ment cen­tre for main­land Chi­nese in­vestors. China is a grow­ing mar­ket for wealth man­age­ment, ow­ing to its rapid de­vel­op­ment. The stock con­nects mean that Chi­nese in­vestors can buy Hong Kong stocks, and a bond con­nect is ex­pected this year. “There will be more prod­ucts launches at the HKEX to ful­fill the role as a wealth man­age­ment cen­tre for main­lan­ders,” says Chow.

Chow of­fers a nu­anced view on the na­ture of reg­u­la­tion for Hong Kong’s stock ex­change. The HKEX is it­self a listed com­pany, and com­men­ta­tors have there­fore called for the HKEX to give up its front line reg­u­la­tory role, be­liev­ing there to be a con­flict of in­ter­est. The HKEX wants to have as many list­ings as pos­si­ble to help boost earn­ings, but the idea goes that it con­flicts with the re­quire­ment of the HKEX to main­tain high list­ing stan­dards.

Chow sees no need to change the cur­rent model, cit­ing the suc­cess of the Hong Kong Ex­change thus far. “We have an ac­tive IPO mar­kets and we have ac­tive turnover. This shows the cur­rent sys­tem works well,” Chow says. In fact, Chow reck­ons that hav­ing to serve the pub­lic in­ter­est while lis­ten­ing to listed com­pa­nies is a virtue, giv­ing the HKEX the abil­ity to “launch ser­vices and prod­ucts that the mar­ket needs.” Chow high­lights the im­por­tance of good com­mu­ni­ca­tion with the SFC. “It is also im­por­tant to achieve a good bal­ance of reg­u­la­tion and mar­ket de­vel­op­ment.” Most re­cently, HKEX beat quar­terly earn­ings ex­pec­ta­tions quite hand­ily.

Asked about the fu­ture de­vel­op­ment of Hong Kong, Chow re­sorts to a quote from Charles Dar­win: It is not the strong­est of the species that sur­vives, not the most in­tel­li­gent that sur­vives. It is the one that is the most adapt­able to change.

“THERE WILL BE MORE PROD­UCTS LAUNCHES AT THE HKEX TO FUL­FILL THE ROLE AS A WEALTH MAN­AGE­MENT CEN­TRE FOR MAIN­LAN­DERS” – Chow Chung-kong

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