Exchanges need to work in tandem
Differences in the regulatory frameworks between the mainland and Hong Kong not only confuse investors but also they make life difficult for directors of dual-listed companies who must meet the requirements of both markets.
There are 40 companies with H shares in Hong Kong and A shares in Shanghai, representing about 4 per cent of the more than 1,000 listed companies in the Hong Kong stock market. That is not yet a high proportion, but as more H shares, red chips or even Hong Kong blue chips list in the mainland, a synchronised regulatory framework and trading rules may be a must.
The Hong Kong market has 370 mainland companies, representing 30 per cent of listings, 50 per cent of market capitalisation and 60 per cent of turnover, exchange statistics show. These firms may be potential candidates to list in the mainland market while other new mainland listing candidates may opt for A and H-share dual listing.
As things stand, the marked differences between the two markets in terms of regulation and trading rules can cause many problems.
For example, China Life Insurance last Monday suspended trading at different times in the two markets. This prompted the Hong Kong exchange to consider a new rule requiring dual-listed companies that have their A shares suspended from trading to inform the HKEx by 9am - an hour before the Hong Kong market opens and 30 minutes before the Shanghai market starts trading - if they are to be suspended in Hong Kong or intend to announce any corporate news.
To name a few from the long list of differences:
Hong Kong companies report results on a half-year basis while mainland-listed companies report every three months;
Mainland rules require firms to give profit warnings while Hong Kong has no such rules; and
Hong Kong has fully complied with the International Accounting Standards while mainland-listed companies, which have followed such rules from the beginning of this year, have accounting treatments that do not yet fully comply with international practices.
Companies usually post announcements on the Shanghai Stock Exchange website before putting announcements on the Hong Kong Exchanges and Clearing site several hours later; in many cases, the announcement in Shanghai is also usually more detailed than the one for Hong Kong.
Edward Chow Kwong-fai, independent director of dual-listed firm China Merchant Bank, who is also vice-chairman of the Hong Kong Institute of Directors, said it was a pain to be a director of a dual-listed firm.
'The differences in the rules and regulations between the Hong Kong and mainland markets not only confuse investors, but it also means a tough life for directors of a dual-listed company - we have to read two rule books, follow two sets of company law, two sets of accounting statements, two trading rules and announcement requirements,' Mr Chow said.
Best bet is on the yuan
If you could afford to invest in only one currency, it must be the yuan, according to investment expert Mark Konyn, our podcast and video guest this week. Mr Konyn, the chief executive in Asia-Pacific for RCM, the investment arm of Allianz Global Investors, said China had been the focus of international investors and all factors related to the mainland currency were on an upward trend.
'Our investors around the world from Europe, the US or the Middle East, they all ask about investment opportunities in China,' Mr Konyn said.
On equities, the market was right to be concerned about potential central government economic policy. This, added to uncertainty about the US economy, meant the market would continue to be volatile for the rest of the year, and investors should not expect a repeat of last year's high returns.
New chairman for HK insurers
The Hong Kong Federation of Insurers has a new chairman. Michael Huddart, executive vice-president and general manager of Manulife's business in Hong Kong, last week was elected chairman of the industry body. Agnes Koon, director and chief operating officer of Falcon Insurance (Hong Kong), was elected as the deputy chairman.
Legally correct
Law firm Paul, Hastings, Janofsky & Walker is teaming up with charity organisation Project Hope to build an elementary school in Longqiu village in Jing'an county, Jiangxi province. The school will serve 300 students from five villages in the county with modern classroom facilities. The name of the school? No surprise - Paul Hastings Hope Elementary School.
