Grasping the opportunities
Hong Kong has experienced different challenges over the past year. In recent months, while our economy was hard hit by the COVID-19 pandemic and the market was clouded with pessimisms, there were also worrying signs that violent acts may return. At this critical moment, the National People’s Congress (NPC) has decided to plug the loophole of the existing law by taking forward the national security legislation for the HKSAR, with a hope of restoring public safety and social stability in Hong Kong. Although the details of the legislation have yet to be announced, negative speculations have been flooding in. And amid the conflicts between China and the US, the US has resorted to so-called sanctions in an attempt to meddle in the legislation work. Relevant discussions have stirred up concerns and questions on Hong Kong’s future development.
The substantial impact of the so-called sanctions recently mentioned by the US is very limited. Some have suggested other hypothetical questions, such as, how about Hong Kong is banned from using the US dollar or accessing the US dollar clearing system under the most extreme scenario. On this, I would like to emphasise that Hong Kong is the world’s third largest USD forex trading centre, serving numerous multinationals enterprises in the Asia-Pacific region and across the globe, with services ranging from investment and wealth management to trade and settlement. With Hong Kong’s financial system closely integrated with the global economic and financial systems, any move that hits our financial system would also send shock waves across the global financial markets, including the US. Confidence of international investors in using the USD and holding US financial assets could also be undermined. These extreme measures are therefore highly risky to the US itself. The Government will react vigilantly and there is no reason to over worry.
As regards whether Hong Kong could continue to be a hub of capital and talents and maintain its status as an international financial centre, I am optimistic and confident to that. I have touched upon this in my blog last week and would like to elaborate further.
Over the past 23 years, the total market capitalisation of Hong Kong stock market has increased from HK$3,200 billion in 1997 to more than HK$36,000 billion currently. Apart from giving impetus to Hong Kong’s continuous economic development, the growth in the market has opened up channels for state-owned enterprises, red-chip and private enterprises of the Mainland to raise fund in Hong Kong. As a result, Hong Kong has become a hub for enterprises with growth potential and fundraising needs, as well as capital looking for returns. The establishment of the connection mechanism between Hong Kong and the Mainland stock markets has linked up the capital and market of the Mainland and the world, and enriched the base of investors for Hong Kong stock market. The stocks currently covered by the southbound and northbound transactions amount to 77% of the total market capitalisation of Hong Kong and the Mainland, giving rise to the development of the derivative products market. This explains why the international index company MSCI recently has transferred the license of issuing index futures and options contracts based on a suite of indexes on Asia and Emerging Markets from the Singapore Exchange Ltd. to the Hong Kong Exchange & Clearing Ltd. And this is just the beginning. With the development trend continues, Hong Kong stock market will become more internationalised and more comprehensive.
Looking ahead, Hong Kong stock market will go through another upgrading process. With the China-US conflict and the protectionism around the world intensifies, many global enterprises are now facing increasing geopolitical risks. To those Chinese enterprises listed in foreign markets, there are urgent needs for them to manage their risks arising from the new political uncertainties. Following Alibaba’s return for listing in Hong Kong market last year, many large-scale Chinese enterprises currently listed in the US market have decided to come to Hong Kong for secondary listing this year. This indeed shows a new trend. According to some statistics, there were around 150 Chinese enterprises listed in the US stock market as at early last year. At the same time, innovation and technology enterprises and other companies in the Mainland seeking international capital, as well as foreign companies targeting the Mainland market, may also give higher priority to Hong Kong as their funding raising platform.
In 2018, with a view to bringing in new driving force to Hong Kong stock market, we reformed the listing regime to allow emerging and innovative companies with weighted voting rights structure, pre-revenue or pre-profit biotechnology enterprises to list in Hong Kong, and facilitate companies listed in other markets to come to Hong Kong for secondary listing. Over the past two years, 87 emerging-economy companies have already listed in Hong Kong and raised a total of HK$300 billion. Among these, HK$43.9 was raised by biotechnology enterprises, making Hong Kong the Asia-Pacific region’s largest, as well as the world’s second largest financing hub for biotechnology. This demonstrates that effective positioning and adjustments to established mechanism could bring us remarkable results.
By embracing the new development trend, we give new impetus to the Hong Kong stock market. The structure of the market can be transformed to covering both conventional businesses and innovation and technology enterprises. This allows us to address the financing needs generated by the change in economic structure, and ensure that our financial services could better serve the need of the real economy. It can also energise our market and enhance the efficiency of value and price discovery.
Of course, as an international finance centre, apart from being a capital hub, it is equally important for us to attract talents. Some people say that the national security legislation for the HKSAR would lead to a brain drain or deter international talents from coming to Hong Kong. This is over worrying. In fact, other international financial centres around the world have also put in place legislation for safeguarding their countries’ national security. What has been pursuing in Hong Kong now is no different from them. To me, the most important elements to attract talents are the room and opportunities for development, as well as a free, secure and stable social environment that allow people to live and work happily. With Hong Kong’s institutional strength under the “one country, two system” principle, people in Hong Kong could enjoy the capitalist system while at the same time grasp the development opportunities brought by the continuous reform and opening-up of the Mainland market . In addition, Hong Kong is a free, open and inclusive society which respects the rule of law. Our living environment is safe and convenient with an East-meet-West culture. We have fine wine and cuisines from all around the world and an easily accessible countryside. All these contribute to the attractiveness and uniqueness of Hong Kong. I wish everyone can join us together to treasure, safeguard and develop our beloved Hong Kong.
Jun 7, 2020