The race to secure listings is taking on a challenging edge for Hong Kong's stock exchange as its regional peers sharpen their focus on the mainland initial public offering (IPO) machine. Viewed by investors as a gateway to the mainland's growing economy, Hong Kong has been the fund-raising centre of choice for mainland firms since the first cross-border company listed on the city's bourse nearly 20 years ago.
Hong Kong attracted HK$259.8 billion in IPOs on the main and Growth Enterprise Market board last year. For the third year in a row, it ranked first globally in terms of funds raised through IPOs.
By the end of last year, 43 per cent of companies listed on the main board were mainland enterprises, contributing 56 per cent of the bourse's market capitalisation.
Other exchanges are seeking a greater slice of the mainland's listing pipeline. Singapore revealed this determination in attempting to merge with the Australian Stock Exchange last year, but it was thwarted by the Australian government.
Singapore has typically been dwarfed by Hong Kong. It raised just US$6.1 billion on its exchange last year. Hong Kong's greater liquidity makes it more able than its regional counterpart to absorb larger IPOs. It has, however, become innovative by, for example, introducing a market for real estate investment trusts (reits) in 2002 and business trust structures two years later.
Paul Lau, a partner at KPMG China, says: 'It may be beneficial for HKEx to continue exploring business trust listings in Hong Kong. The spin-off of PCCW's telecom business last November was the first business trust IPO in Hong Kong, whereas business listings in Singapore have been developed for quite some time.
'Hong Kong's requirements for business trust listings are no less stringent than those for standard company listings, so having a framework in place for business trust listings should allow it to better compete with other exchanges in the region, such as the SGX [Singapore Exchange].'
Romnesh Lamba, head of market development at HKEx, explains that competition in Asia for overseas listings tends to be between Hong Kong and Singapore. This could broaden to include Shanghai if it launches an international board. However, earlier this month, the Shanghai Stock Exchange said it had no imminent plans to do so.
Prominent names such as Formula One and Manchester United have opted for Singapore. Motor racing company Formula One is planning a US$3 billion IPO, while the soccer club aims to raise US$1 billion.
'Sometimes it's [a decision] around listing rules,' Lamba says. 'Sometimes it's about proximity - for example, Formula One has a race in Singapore. Broadly speaking, we get the lion's share of international companies listing in Asia.'
In terms of mainland listings, Hong Kong faces competition from farther afield, says Edward Au, national co-leader of Deloitte China's public offering group. 'Hong Kong is always competing with the biggest capital market in the world, the US, in terms of IPO fund-raising capability.'
This is echoed by Edmond Chan, PricewaterhouseCoopers capital market services group partner, who points to New York and London in particular.
Yet with the majority of issuers still coming from the mainland - a trend likely to continue in the next few years - Hong Kong is likely to retain its top position as the listing centre of choice for these enterprises. As Lamba explains, so many issuers are coming out of the mainland that Shanghai, Shenzhen and Hong Kong cannot absorb them all.
Hong Kong's proximity, language and liquidity traditionally make it top of most Chinese companies' lists. 'Hong Kong is always regarded as the first choice for PRC companies,' Chan notes. 'I think this trend will continue.'
Overseas luxury brands will continue to seek a listing in the city as they move closer to their target audience - the Chinese consumer. Hong Kong has already seen the listing of luxury giants such as Prada, Samsonite and Coach.
Mining and mineral companies likewise are likely to continue seeking listings in the region as they seek to align shareholders with their growth, according to Lamba.
Yet to continue to compete, Hong Kong must continue to increase and diversity stock market products, explains Chan, pointing to renminbi products in particular.
The first renminbi-denominated reit listed in Hong Kong in April last year. Chan would like to see more.
One area Hong Kong's stock exchange has been looking to is the fixed income, currency and commodities market, which in Asia has historically been fragmented, according to Lamba.
Lamba points to HKEx's bid for the London Metal Exchange (LME) as a move that would bring it closer to expanding the bourse's outlook. Hong Kong is competing against InterContinental Exchange to acquire the world's biggest metals marketplace.
'One of the reasons we are in the LME process is because we believe this will allow us to kickstart our commodities business if we are successful in acquiring it,' he explains.
Chan agrees that an acquisition of the LME would make a difference. 'Having a metal exchange linkage, people will further see Hong Kong more and more as an international exchange, with proper diversity and more liquidity.'
According to Terence Ho, Greater China strategic growth markets leader at Ernst & Young, the acquisition would help Hong Kong diversify.
'This is getting more and more important to this part of the world. Because of China's economic growth, it's a big consumer of metals and commodities,' he says.