Hong Kong exchange chief upbeat on drawing foreign listings

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Stronger connections with China’s vast army of retail investors will help Hong Kong’s stock exchange lure more international companies to list despite flaring tensions between Beijing and the west, its chief executive has said.

Nicolas Aguzin told the Financial Times that Hong Kong was working to rebuild its connections after three years of Covid-induced isolation but that the lure of tapping mainland Chinese money would remain a big draw for the exchange.

“Chinese retail is the biggest investor group of its kind — there’s nothing comparable to it,” the boss of Hong Kong Exchanges & Clearing said. “Essentially, we’re offering companies an investor base uncorrelated with other markets.”

His comments come against a backdrop of strained relations between China and the US, which has prompted western companies to discuss ways of “de-risking” Chinese operations by working to wall them off from other units. 

Trading volumes fell by a quarter in Hong Kong last year and only recovered slightly in early 2023 as China reopened. The exchange is more heavily dependent on equities listing and trading for its profits than many rivals. Of the five biggest exchange groups by market capitalisation, Hong Kong Exchanges & Clearing is the worst performer this year, down 10 per cent.

Aguzin pointed to a scheme started in March allowing mainland investors to trade directly in international stocks listed in Hong Kong, and a new “dual counter” scheme that launched this month. The latter allows the same Hong Kong-listed stock to be traded in either renminbi or Hong Kong dollars.

The so-called “one-stock, two-currencies” system, is currently limited to 24 of the most-traded stocks and also to renminbi already held offshore. Over time, it is expected to expand to include onshore funds.

Aguzin said the aim was to make buying a Hong Kong-listed share the same as buying mainland-listed stocks denominated in renminbi.

“We now have a really strong [unique selling proposition] with the Chinese retail investor. Before, we were only able to offer a select group of Chinese investors who in reality could have invested anywhere,” he said.

The bourse has tried before to promote a more international image, persuading Italian fashion brand Prada and luggage-maker Samsonite to float in the city in 2011 amid a luxury brand boom in China and a growing pool of mainland money held offshore.

However, few followed, preferring other markets. Last year, Italian yacht builder Ferretti went public in Hong Kong, in large part due to its Chinese then-majority owner. Its shares were trading flat against the initial public offering price until it announced a dual listing in Milan, which will complete on Tuesday.

Those stutters have underscored HKEX’s dependence on listing Chinese companies.

Over the past decade, Hong Kong has been responsible for raising a third, or $214bn, of the total raised globally by Chinese companies according to Dealogic data, but in the past 18 months the city has raised just $9.2bn through IPOs compared with $97.6bn in the mainland. 

Aguzin cautioned that he expected new listing interest to grow only gradually. 

“We think south-east Asia first, then other companies in the region with a presence in China. Eventually, some European brand names will potentially be interested,” he said.

Last week Aguzin visited New York to officially open HKEX’s office in the city and will soon open one in London too as it works to boost its international standing. “This is not about listings as such but more about talking to the investors,” he said.