HKEX stays relevant with A shares-tied products
- Hong Kong’s best years as a financial hub are still ahead as stock exchange launches derivatives based on mainland Chinese equities to attract deep-pocketed institutional investors from across the world
Here’s an interesting fact about the Hong Kong stock exchange for a trivia quiz, except it’s actually not trivial. The exchange has been home to listed mainland Chinese companies since 1993, but it only started trading its first A-share futures in October for international investors to hedge against shares listed in Shanghai and Shenzhen. Singapore, by contrast, has enjoyed a head start in promoting structured or derivative products from equities listed in Asia. But Hong Kong is now catching up fast.
The bourse is licensed to run the MSCI A 50 index. Hong Kong Exchanges and Clearing (HKEX) chief executive Nicolas Aguzin has revealed plans to launch structured products based on the A-shares index and to encourage investment banks to issue their own MSCI-based products for A shares such as derivative warrants. The MSCI index tracks 50 of the largest Shanghai and Shenzhen stocks. The new scheme will help connect capital markets in China and elsewhere, reinforcing Hong Kong’s role as the “super-connector”.
After some difficult years, it’s imperative for the city to re-establish its dominance as the offshore capital hub for mainland China.
At the time of the handover in 1997, mainland companies accounted for just 15 per cent of the local bourse’s total market capitalisation; today, it’s 80 per cent. Stock market turnover has risen 10 times during the past 25 years to about HK$150 billion (US$19 billion) a day, while total market capitalisation has grown 12 times to HK$38.9 trillion.
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HKEX CEO Nicolas Aguzin on the future of Hong Kong’s capital market
It’s not unimaginable for the Chinese capital markets to grow from about US$30 trillion to over US$100 trillion, as Aguzin has projected. Expanding the A-share ecosystem is the logical next step. MSCI China A 50 Connect (USD) Index futures are already popular. This follows the successful “connect” schemes in stocks, bonds and wealth management, and myriad exchange-traded fund (ETF) products.
Hong Kong is facing headwinds from macroeconomic challenges such as geopolitical tensions, rising interest rates and inflation. But longer terms, the city’s position as a hub for international and mainland capital will remain unchallenged, if not enhanced.
Despite the recent political turmoil, Hong Kong’s best years as a financial hub are still ahead.
