As HKEX turns 20, it has never been more relevant as bridge between China and world, CEO Charles Li says

Hong Kong Exchanges and Clearing marks its 20th birthday on June 27
Latest three-year plan will achieve its goal of keeping Hong Kong’s exchange ‘China anchored, globally connected and technology empowered’: Charles Li

HKEX

Enoch Yiu

Published: 5:00pm, 16 Jun 2020

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China and the rest of the world need each other, and Hong Kong and its bourse operator, Hong Kong Exchanges and Clearing (HKEX), will play the crucial role of connector and translator, Charles Li Xiaojia said.

In a blog post to the mark the 20th anniversary of HKEX’s foundation, its outgoing chief executive also said his last three-year plan, for the 2019-2021 period, would help the Hong Kong exchange become the most important financial market in Asia.

Formed in 2000 through the combination of the stock exchange, futures exchange and three clearing houses, HKEX marks its 20th birthday on June 27, and Li said he was optimistic that the exchange, Asia’s third-largest capital market, could move a step closer to becoming a global financial market place in its third decade, despite tensions between mainland China and the United States, social unrest around the world and the coronavirus pandemic.

“Our role has never been more relevant or more important,” Li said in his blog. “Hong Kong, and HKEX in particular, will continue to play the critical role of connector, translator and bridge between China and the world.”

He pointed out that the internationalisation of the yuan and the opening of China’s financial markets might be slow, but the country was still on an “irreversible track” towards further integration with international markets. “China and the rest of the world need each other,” Li said.

HKEX’s future will very much depend on whether it can capture the opportunities offered by the burgeoning Chinese economy in the 21st century.

Louis Tse Ming-kwong, managing director, VC Asset Management

Li, who steps down in October 2021 after 12 years at the helm, said he believed the three-year plan will achieve its goal of keeping Hong Kong’s exchange “China anchored, globally connected and technology empowered”.

“The future of the exchange will depend on whether it can find a strong leader for the next decade. Political tension between the US and China and the Covid-19 pandemic will pose challenges to HKEX’s development in the near term. Charles Li’s departure next year will also create more uncertainties for the exchange,” said Tom Chan Pak-lam, the chairman of Hong Kong Institute of Securities Dealers.

Charles Li Xiaojia steps down in October 2021 after 12 years at the helm of HKEX. Photo: Nora Tam

HKEX listed in Hong Kong on June 27, 2000 at HK$3.88 a share. As of Tuesday morning, its stock stood at HK$294.8. Anyone who bought 1,000 shares at HK$3,880 (US$500) at the time of its listing, their shares will be worth HK$294,800 at the moment.

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The number of companies listed on the exchange has risen too, from 790 to 2,482, while its total market capitalisation has risen eightfold to HK$34 trillion. The exchange has also been the top IPO market worldwide seven times over the past 11 years, and was boosted by a listing reform in April 2018 that allowed companies with multiple classes of voting rights and biotechnology companies without revenue to list in Hong Kong. The exchange has also made it easier for technology companies listed in the US or the United Kingdom to have a secondary listing in the city.

These reforms have attracted IPOs such as that of Xiaomi, the world’s fourth-largest smartphone maker, and mainland Chinese food delivery platform Meituan Dianping. They also attracted a secondary listing by South China Morning Post parent Alibaba Group Holding last year. And as US-China tensions mount, more Chinese technology companies listed in America are considering secondary flotations in the city – gaming company NetEase and online shopping platform JD.com just completed mega IPOs and raised a combined US$7 billion this month. And more such listings, by the likes of search engine Baidu, are in the pipeline.

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HKEX will launch 37 futures and options contracts tied to MSCI's Asia and emerging markets-focused indices next, replacing Singapore as the index provider’s Asia derivatives hub. The announcement on May 27 came just a day before the National People’s Congress (NPC), China’s highest organ of state power, passed a national security law for Hong Kong, which has been viewed as undermining the special administrative region’s autonomy.

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Attempts at overseas expansion by the bourse operator have yielded mixed results. It acquired the London Metal Exchange in 2012, but failed in its bid to buy the London Stock Exchange last year. The exchange will, however, continue to pursue mergers and acquisitions, Li said in an earlier interview.

The Stock Connect schemes launched in 2014 (Shanghai) and 2016 (Shenzhen) established HKEX as a cross-border trading hub. International investors had traded A shares worth a total of 25.8 trillion yuan (US$3.6 trillion) through the schemes, while mainland Chinese investors had traded HK$11.04 trillion worth of shares in Hong Kong, as of end of May.

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“HKEX’s future will very much depend on whether it can capture the opportunities offered by the burgeoning Chinese economy in the 21st century. It should also consider building alliances with global exchanges and regional exchanges, and build more Stock Connects with other bourses,” said Louis Tse Ming-kwong, the managing director of VC Asset Management. “The competition from Singapore is a myth, as Singapore's economy and GDP bases do not match Hong Kong’s,” he said.

If HKEX does face any challenge, it is from Shanghai, which has recorded more IPOs than Hong Kong in the first quarter of this year. Stephen Chan, a partner at law firm Dechert, however, said the Hong Kong exchange will continue to be the leading bourse in Asia for a considerable period of time, because of the presence of more international investors.

This article appeared in the South China Morning Post print edition as: HKEX has ‘vital role as bridge to China’

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