Chinese investors’ access to Hong Kong’s IPO market gets added boost by the Aramco factor

A proposal by Hong Kong and mainland China’s stock exchanges to let investors partake in initial public offerings in each other’s markets has been given an added impetus by the prospect of attracting the US$2 trillion Saudi Aramco to raise funds in the city.

Hong Kong is one of several global equity bourses including New York, London, Tokyo, Toronto and Singapore contending to be the staging ground for Aramco’s IPO, estimated to be US$100 billion in size. The proposal, known as the “Primary Equity Connect,” would let investors from China’s US$7.6 trillion capital market gain access to the Aramco IPO through Hong Kong, increasing the city’s attractiveness as a place for raising capital.

From China’s side, Aramco listing in Hong Kong can also provide a “natural hedge” for domestic investors against the oil price volatility, said Charles Li Xiaojia, chief executive of Hong Kong Exchanges & Clearing (HKEX), the exchange operator.

The “primary equity connect” and the Aramco listing in Hong Kong can be a successful combination, as both sides are able to benefit from it, Li said during a conference in the city. “It’s a win-win situation,” he said.

Li didn’t specify on the timetable of the launch of primary equity connect, but said the exchange has been in talks with relevant parties. “We never stop (the talks),” Li said.

Last year, Li said in his blog that the “Primary Equity Connect” is feasible from a technical perspective, but important work remains for regulators to iron out the right regulatory framework.