Beijing’s surprise plan for a stock exchange may help Hong Kong’s drive for quality as it keeps smaller companies at arm’s length
- The new Beijing exchange, aimed at helping small innovative companies raise funds, would also be an attempt at reforming the NEEQ
- Established in 2013, NEEQ was akin to a kindergarten for the stock market, where start-ups could raise funds from professional investors before graduating to listings in Shanghai, Shenzhen or even in Hong Kong
China’s surprise plan to set up an equities exchange in the nation’s capital may be most keenly felt by Hong Kong’s growth-enterprise market (GEM) as the Beijing bourse provides a fundraising avenue with easier listing rules closer to home, stockbrokers said.
The plan, announced by China’s President Xi Jinping overnight, may also imperil an agreement put in place in April 2018 for companies on Beijing’s National Equities Exchange and Quotations (NEEQ) to be dual-listed in Hong Kong.
“Start-ups may prefer to list in their home market instead of facing the tougher listing requirements in Hong Kong,” said Tom Chan Pak-lam, the chairman of the Institute of Securities Dealers, an industry body for local brokers.
The plan would do little to dent the Hong Kong stock market’s main board, the world’s third-largest capital market with a value of HK$47.36 trillion (US$6.09 trillion), behind New York and the combined capitalisation of Shanghai and Shenzhen. Bigger companies that need convertible currencies, or require deep capital pools to serve their financing needs, will still keep Hong Kong as their preferred market, as shown by the city’s record as the world’s top destination for initial public offerings (IPOs) in seven of the past 12 years.
“Hong Kong’s main board is still the most attractive listing hub for large mainland Chinese companies that want the international exposure,” Chan said.
Beijing’s proposal may be most painfully felt at the HK$129 billion GEM, where a third of the 361 pre-profit start-ups listed in the 22-year-old market are domiciled in mainland China. GEM is a small capital pool, less than half a percentage point of the value of Hong Kong’s main board, where China-based companies make up 80 per cent of the combined capitalisation of 2,201 companies.
To underscore the shift to quality, the minimum profit to qualify for a main board listing in Hong Kong would jump 60 per cent to a combined HK$80 million in the three years before the IPO. The tighter rule is expected to drive away many small companies when it takes effect in January 2022.
