Exclusive | MSCI affirms Hong Kong as ‘absolutely right partner’ for China access after ending licensing deal with Singapore Exchange
- Hong Kong has become a major intermediary for mainland financial assets, MSCI’s chief operating officer Pettit says
- Cooperation with HKEX may get even bigger either by building a new index or just licensing it ‘for the right product at the right time’
“Hong Kong has become a major intermediary for mainland financial assets,” said Baer Pettit, president and chief operating officer of the New York-based global index provider. It is “absolutely the right partner for us related to the Greater China opportunity.”
China’s US$9.4 trillion stock market is the biggest in Asia-Pacific, according to Bloomberg data. With Hong Kong’s US$4.3 trillion market, the market is the deepest among key financial centres in the region, compared with US$5 trillion in Japan and US$378 billion in Singapore.
That assessment came from the early success of its licensing agreement with the Hong Kong Exchanges and Clearing (HKEX) on 37 of its biggest and widely followed indices, in a huge coup for the city’s bourse operator.
The decision in May 2020 to end the derivative agreement with Singapore Exchange (SGX) was based on a “larger customer base” in Hong Kong and the access to institutional and retail investors in Greater China, Henry Fernandez, chairman and chief executive officer at MSCI, said previously.
The offshore ecosystem was expanded in December with the listing of the first exchange-traded fund and derivative warrants on the index.
“We’ve got plenty of upside here with the products we have,” he added. With regard to the theme of global investors coming through Hong Kong to get exposure to China, “ there will be a lot more we can do with that with HKEX, and doubtless, with other products as well.”
Today, Hong Kong is the world’s most actively-traded listed structured products market, with over 11,900 listed products as at end-July. In the first seven months of 2022, the average daily turnover of HKEX’s structured products market amounted to HK$17.9 billion (US$2.3 billion), or 13.4 per cent of the cash market.
Since the Stock Connect scheme started, the role of Hong Kong has been strong, and we believe it will continue to be so,” Pettit added, referring to its advantage as the so-called super-connector to Chinese assets despite recent market wobbles.
Stock markets in mainland China and Hong Kong lost a combined US$700 billion last week before speculations about China’s re-assessment of its zero-Covid policy sent stocks soaring this week. The Hang Seng Index slumped 3.1 per cent on Thursday on interest rate concerns, while the CSI 300 Index of onshore stocks slipped 1.2 per cent.
Commenting on the stock market, Pettit said the next six to 12 months would be very telling “as to how difficult things can get right.”
Investors are generally not happy with the condition and its outlook, adding that “fragile” is the feeling expressed by clients, he added, but demand for derivatives as a hedging tool is usually stronger when the markets are more volatile.