Source : SCMP
Enoch YiuMar 08, 2010
Brokers and listed companies have reacted positively to a three-year plan by Hong Kong Exchanges and Clearing (SEHK: 0388) (HKEx) to form alliances with overseas bourses and entice more international firms to list in the city.
There was also support for a plan by the owner and operator of Hong Kong's stock exchange to introduce new yuan products, although several observers said that could be difficult to achieve since the currency is not yet freely convertible.
HKEx chief executive Charles Li Xiaojia unveiled the exchange's three-year strategic plan last week.
Objectives include creating alliances with mainland and overseas exchanges in the next three years that would benefit its mainland focus.
It also plans to introduce yuan investment products, such as index funds or derivatives for the currency, and measures to attract more international firms to list in the city.
"HKEx will position itself as a market of choice for mainland investors to invest in and for mainland issuers to raise funds," Li said. "We will also attract more new listings from the mainland and from international firms in Hong Kong."
Rex Auyeung Pak-kuen, the chief executive of Principal International (Asia), supported the plan. "I think it is a good idea to form alliances with the mainland bourse. Hong Kong is becoming an important component of the Chinese financial services sector and stronger ties can only add more value," Auyeung said.
Edward Chow Kwong-fai, the chairman of Growth Enterprise Market-listed CIG Yangtze Ports Capital, said he would prefer the exchange formed alliances with overseas rather than mainland bourses.
"By building alliances with international exchanges, Hong Kong can attract more listings of foreign companies and bring more Russian, Asian and South American companies here," Chow said. "Hong Kong and mainland investors would be very interested in investing in big global companies from any of the major economies. They may also have an interest in investing in companies that do business with China, such as mineral and international trading or retailing companies.
"The Hong Kong market should be a market where investor choice and preferences can be satisfied and with ease," he said.
Joseph Tong Tang, chief executive of Sun Hung Kai Financial, said establishing ties with other exchanges would do no harm. "However, this will only be an ancillary plan and shouldn't become a mainstream of business activities of the HKEx because I haven't seen any successful examples in other exchanges so far for similar ideas," he said.
Tong said it would be better to focus on drawing more listings by international companies.
"The HKEx has so far been very successful in becoming a leading fund-raising centre for Chinese enterprises. We should expand our exchange platform to allow different types of companies to get access," he said, adding the exchange should bring in new rules for resources companies seeking listings and change the rules to make it easier for international firms to list in the city.
"Hong Kong investors are receptive to foreign investments but, in the end, whether they will invest will depend on valuations," he said.
Principal's Auyeung said enticing more foreign firms to list in Hong Kong would reinforce the city's status as an international financial centre.
"I support any move to get more international firms to list here. But we can't compromise on quality. When we can offer more quality choices to investors, the market will grow steadily," Auyeung said.
Mike Wong Ming-wai, chief executive of the Chamber of Hong Kong Listed Companies, said it would welcome more international firms to list in the city, and said they would could also join the chamber. "The more international firm listings we attract, the greater Hong Kong's attraction as an international financial centre - and also, the greater the choice for investors," Wong said.
Brokers said it was natural for the exchange to nominate the development of yuan products as a focus. But it could be difficult.
Wong said Hong Kong needed to have more yuan in circulation to create a successful yuan market. At present, only 62 billion yuan (HK$70.50 billion) is in circulation in the city - not enough for a mega yuan bond or yuan initial public offerings.
China still has capital controls, which means an individual can only exchange 20,000 yuan a day in Hong Kong - not enough to buy one board lot of HSBC (SEHK: 0005) shares, brokers noted. In addition, there are restrictions on who can open yuan accounts, while many brokers cannot open yuan bank accounts and would be unable to handle clients trading in yuan products.
Tong said the key challenge for Hong Kong in developing yuan products would be the fact that the currency is not freely convertible. As such, he urged the exchange not to focus on yuan products at this point.
"Professional investors who are interested in yuan shares or bonds can do so through the QFII [qualified foreign institutional investor] system. So I really don't see a huge unsatisfied demand for yuan products traded in Hong Kong.
"Instead, the HKEx's priority should be to upgrade and expand its platform to make it the top fund-raising centre in the world," Tong said.
But Chan supported the bid to develop yuan products and said Hong Kong should be used as a test bed for yuan-denominated products.
Principal's Auyeung said: "It is trendy to have yuan products, but we need to have greater access to the yuan. I do understand the reasons for control of the currency, but hopefully HK can be given a break."
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