Politicians should at least have some grasp of how markets work

PUBLISHED : Thursday, 04 January, 2007, 12:00am
UPDATED : Thursday, 04 January, 2007, 12:00am

'... and the main criteria for the listing application eligibility should be the company's potential for development and its quality.'

Chan Kam-lam,


THE BEIJING LAPDOG PARTY (DAB) has discovered the stock market and now wants to make it a bigger one by encouraging it to attract listings from around the world

Unfortunately, the party's chief spokesman on the matter does not understand how a stock market works. This is so common a failing in political circles that I sometimes think it is a requirement for holding public office. But let us try to set Mr Chan straight nonetheless.

It takes two to tango, they say, and it takes two to make a market, one to buy and one to sell. A listing prospect may be of the highest possible quality and have the greatest possible potential for development but if no investor wants to buy it at the price it is offered then it will not be listed on a stock market.

Equally, a listing prospect may be of poor quality and have little potential for development but if it is offered at a low enough price, it will be snapped up and the listing will take place.

It all depends on price. There is no such thing on a market as absolute quality or absolute potential. It is all quality at a price or potential at a price. High quality may be a bad purchase if the price is too high. Low quality may be a good purchase if the price is low enough.

Pardon me if you think you have seen this sermon several times in this column recently. You have. But when politicians indulge their ignorance of investment matters, they can make other people think that their ideas should be given some weight, no matter how silly those ideas.

It is not the job of the stock exchange to assess the investment prospects of a company that applies for a listing. This is the role of listing sponsors and underwriters and it is a purely commercial one of determining offer terms that satisfy both the company and potential investors.

The job of the stock exchange itself in all this is to ensure that basic measures are taken to protect investors in the new offering. This includes such things as ensuring that the company has a track record, that it is not run by a band of convicted criminals and that it publishes a full prospectus to which it is legally committed.

But what members of the exchange's listing committee should never do is make listing decisions on the basis of 'the company's potential for development and its quality'. Let us be grateful that we have people on the listing committee who realise this. We can probably give up hope that our political parties will ever do so.

'Thousands of people flocked to inspect show flats yesterday as 3,632 subsidised units aimed at low income families returned to the market following a four-year suspension of sales.'

SCMP, January 3

THERE IS SOMETHING that I don't quite understand here. These are government home ownership scheme (HOS) flats and are being sold to lower income people who qualify for them at a 30 per cent discount or more from the prevailing market price. This offering, in short, constitutes a social service.

Why then are they being promoted with special show flats and sale promotion brochures as if this were a private sector offering from a developer seeking to get the highest possible price he can for his properties?

If a 30 per cent discount (and it is probably greater) is not enough to attract people to these flats without any further sales inducement then we have a telling comment on HOS flats. They must be built to a very low standard indeed.

But this is unlikely. Although many people regard public housing as low standard housing, the last series of HOS flats built before the whole programme was put on hold are decent accommodation by any standard. That discount should have been enough.

I can understand why the Housing Authority should want some evidence of enthusiasm for its offerings but let us take this a step further.

Why not have the social welfare department now promote comprehensive social security assistance with glossy brochures and displays of what monthly CSSA payments can provide the recipients.

When you come down to it, this really would not be much different from promoting HOS flats with brochures and show flats.

These two are just different forms of social security assistance. If we promote the one why not promote the other this way too?