Surge in interbank rates and bond yields spurs listing rush
Mainland firms increasingly raise funds from HK share sales amid Beijing's reform push
Hong Kong's listing market has experienced its busiest quarter on record in the face of a surge in interbank rates and bond yields when the People's Bank of China abstained from accommodating the seasonal demand for cash.
The eagerness for year-end listings may signal not only the demand for cost-attractive funding sources in the city, but also an expected power struggle over the policy of moderating the rapid credit expansion on the mainland.
As we are all aware, reform of the mainland's financial market, which lies at the heart of Beijing's reform list, should embrace the eventual liberalisation of deposit rates, leaving the cost of capital to depend much on market availability.
Remarkable, in these circumstances, was a surge in deposits kept with Yu E Bao, an interest-paying investment vehicle offered by the online payment unit of Alibaba, the mainland's e-commerce giant. It attracted more than 100 billion yuan (HK$126.8 billion) from conventional depositors at the end of last month, up from 5.7 billion yuan at the end of June when the product was launched.
The runaway success of the money-taking service has raised much attention from banking executives and regulators, which are carefully managing the pace of financial reform together with the launch of stringent capital requirements.
A reading of the public documents of the newly listed financial institutions, including China Everbright Bank and China Cinda Asset Management, shows many are undertaking market-driven funding experiments in the hope of lessening their reliance on capital from the central bank and the Ministry of Finance, which will obviously be shaken up in the reform of the state-owned system.
The credit crunch in December was the second this year and raised queries over the funding environment in 2014. Against this background, a number of city commercial banks, including China Guangfa Bank with a sizeable credit-card business, are planning to launch initial public offerings in Hong Kong as early as next month despite a resumption of the mainland's listing market.
Battered by fears of a credit crunch, mainland stocks have fallen since early this month, wiping out the gains that followed the plenary session in November, with the benchmark Shanghai Composite Index significantly underperforming other emerging markets. The downbeat mood was extended due to the resumption of the domestic listing market as well.
For the year ahead, market participants seem to concur with the view that the United States will engineer an orderly exit from its bond-buying programme and a policy change on interest rates looks doubtful after a sluggish recovery in the labour market.