Hong Kong should add global stocks for mainland investors to trade, SFC’s Tong says
Hong Kong could enhance the attractiveness of the bourse by adding global stocks to its Connect schemes and cracking down on so-called con stocks, SFC’s chairman Tong said.
International companies that have raised capital on Hong Kong’s stock exchange should also be available to mainland Chinese investors under the city’s so-called Stock Connect schemes, said the Securities & Futures Commission’s chairman Carlson Tong Ka-shing.
“An item on my personal wish list is for Beijing to consider adding the international companies that are listed in Hong Kong to the Connect schemes for mainland investors,” Tong said in an interview with the South China Morning Post. “If mainland investors, who now represent 10 per cent of Hong Kong’s market turnover, can be allowed to buy and sell international stocks, it will attract more overseas firms to list here to capture the mainland capital.”
Italian fashion brand Prada, the UK’s insurer Prudential PLC, and Russian aluminium smelter Rusal are among the international companies that have raised capital in Hong Kong and have their shares listed on the city’s bourse. But they are not among the 880 of Hong Kong-listed stocks selected for the Stocks Connect scheme, which allows Hongkongers to trade stocks on the Shenzhen and Shanghai exchanges, and vice versa.
Tong’s proposal, if translated into reality, could be a fillip to Hong Kong’s financial markets and industry, which have been engaging in a yearlong process of consultations and debates to transform themselves to stay competitive.
While Hong Kong remained the world’s largest destination for initial public offerings (IPOs) with US$19.4 billion raised in the city last year, 69 per cent of the fundraising was by financial firms while only three technology companies raised capital here. Hong Kong needs to create a new board with different listing rules and qualifying criteria to enable technology companies, as well as sovereign firms like Saudi Aramco to raise capital here, analysts and consultants said.
Hong Kong is competing with global exchanges like New York and London to attract Aramco -- the oil company owned by the government of Saudi Arabia -- to list its shares, estimated at US$100 billion for a 5 per cent stake.
“Mainland investors will be interested to invest in international names to diversify their portfolio,” said Morton Securities’ chairman Joseph Tong Tang. “International firms will also find Hong Kong attractive, while Beijing may give such relaxation due consideration as the country is opening up its market.”
To increase Hong Kong’s attractiveness, the SFC will crack down on manipulations by so-called “con stocks,” (老千股) or penny stocks that go through repeated splits to raise yet more funds from investors.
During a recent meeting between the SFC and the China Securities Regulatory Commission chairman Liu Shiyu, the Chinese regulator also expressed concerns about these con stocks, which are catching many mainland investors unaware.
Enforcement actions include trading suspensions and rejecting the listing applications by attempts to create so-called shell companies that enable other companies to engage in back-door listings.
“The SFC is opposed to these activities,” Tong said. “Stock listings should be aimed at raising funds to expand businesses. Shell companies should not be listed as they are bad for the reputation of the Hong Kong market.”