(Picture source: Oriental IC)
Economic Observer Reporter Zhou Yifan July 1, 2022, the 25th anniversary of Hong Kong's return to the motherland. Over the past 25 years, Hong Kong's capital market has undergone tremendous changes.
statistics show that the total market value of Hong Kong stocks has increased from HK$3.2 trillion at the end of 1997 to HK$37.88 trillion on June 27, 2022, of which it once reached the highest point of HK$58.6 trillion in 2021. In addition, as of April 2022, there were 1,370 mainland companies listed in Hong Kong, accounting for 53.3% of the total number of listed companies on the Hong Kong Stock Exchange and 77.7% of the total market value of Hong Kong stocks.
At the same time, the trading situation in Hong Kong market is also developing and becoming more and more prosperous. In the 25 years since the return of Hong Kong, the transaction volume has steadily increased from HK$920 billion in 1998 to HK$41088.1 billion in 2021, which is 44.66 times the transaction volume in 1998.
At present, with the acceleration of the interconnection of financial markets in the Guangdong-Hong Kong-Macao Greater Bay Area, the economic integration process between Hong Kong and the mainland is also accelerating. The gathering of high-quality listing targets and capital is making the Hong Kong stock market more exciting.
"In the future, whether traditional financial institutions or emerging financial technology brokers should seize the opportunities of financial development in this era, attach importance to the upgrading of financial technology services, be prepared to improve user experience and product technology, and not be a spectator in the capital market, and live up to the major opportunities after the return." A relevant person from Huasheng Securities told the Economic Observer reporter.
Hong Kong stock market for 25 years: status upgrade, function evolution
Looking back, many Hong Kong stock listing events seem to be vivid: In 1997, China Mobile became the first major IPO after its return, raising up to HK$32.3 billion; Tencent was listed in Hong Kong in 2004, and later became the king of Asian stocks; in 2018, Xiaomi became the first Hong Kong-listed Internet company with different rights, which had a huge positive impact on the market.
Hong Kong Stock Exchange data shows that as of June 27, 2022, the total market value of Hong Kong stocks reached HK$37.88 trillion, a cumulative increase of 949% in the past 20 years, with a total market value expanding nearly 10 times; Hong Kong-listed companies also rose from 978 in 2002 to the current 2,565, an expansion of nearly 2.5 times.
In this process, the newly revised "Main Board Listing Rules" by the Hong Kong Stock Exchange on April 30, 2018 contributed indestructible. The Main Board Listing Rules create conditions for biotech companies that have no revenue or profit, innovative companies with "same shares and different rights" and innovative companies that have been listed overseas to return to Hong Kong for secondary listing. The number of new IPOs added in the year of the formal implementation exceeded 200. At present, the market value share of the new economy sector (technology, medicine, new consumption, etc.) has increased from 28% at the end of 2017 to 50% at the current level. More and more high-quality mainland assets are listed in Hong Kong, greatly enriching the Hong Kong capital market.
After the revision of the Main Board Listing Rules in 2018, according to the Hong Kong Stock Exchange report, the total market value of Hong Kong-listed companies in 2020/2021 reached HK$47.52 trillion and HK$42.38 trillion respectively; among which, the total market value of listed companies in mainland enterprises reached HK$38.07 trillion (accounting for 80.1%), and HK$33.43 trillion (accounting for 78.9%) respectively. The total number of Hong Kong-listed companies in 2020 and 2021 was 2538 and 2572, respectively; among which the total number of listed companies in mainland enterprises was 1319 and 1368, respectively. In fact, in the current Hong Kong stock market, the number of Chinese listed companies has accounted for half of the market.
At the same time, in the 25 years since Hong Kong's return, the Hang Seng Index has been fluctuating upward overall. At the end of 1996, the Hang Seng Index was at 13,451 points. As of June 27, 2022, the Hang Seng Index was at 22,229 points, with a cumulative increase of 65%.
It is worth mentioning that relevant persons from GF Holdings (Hong Kong) pointed out to the Economic Observer reporter that from the perspective of investor structure, as of June 28, 2022, since the launch of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect, the cumulative net purchase of southbound funds has reached HK$2.38 trillion, and the proportion of Hong Kong Stock Connect transactions accounted for 14.62% of the main board. The inflow rate and trading activity of southbound funds increased significantly by the end of 2020, and the trading activity reached its peak at the beginning of 2021. Among them, institutions are the dominant part of the Hong Kong stock market, and the share of institutional investment is still increasing.
According to data from the Hong Kong Stock Exchange, the total proportion of institutional investors in 2020 and 2019 was 56.5% and 53.4% respectively; the total proportion of individual investors was 15.5% and 20.3% respectively.Among them, in 2020 (2019), investors from other places (non-Hong Kong local institutions) accounted for 36.6% (35.9%), and individual investors accounted for 6.7% (5.3%); local institutions accounted for 16.8% (20.6%), and local individual investors accounted for 13.6% (10.2%); exchange participants themselves accounted for 26.3% (28.1%).
"Hong Kong's securities market has changed from a regional financial center to a global financial center. From mainly serving Hong Kong local customers, it has gradually become an international financial center serving Greater China and even the world. Whether for the mainland of China or the Western world, Hong Kong has played an irreplaceable role in every stage, and its functions have gradually evolved and upgraded, from the introduction of a large amount of foreign capital into Hong Kong in the past to the current flow of capital internally and externally, helping the mainland achieve interconnection with the world." Futu Investment Research Team told Economic Observer reporters.
The regulatory system continues to mature: the economic growth of the mainland promotes the active Hong Kong stock market
The development of the capital market is closely related to the continuous improvement of regulatory policies, and the same is true for Hong Kong.
In terms of connecting with international standards, in 1999, the Hong Kong Monetary Authority carried out unprecedented reform of the financial industry regulatory system in accordance with the recommendations of the Basel Banking Regulatory Commission, and transformed the original capital-based regulatory system into a regulatory system with risk control as the core. Later, in 2007, Hong Kong implemented a new international capital and risk management standard, and used the Internal Rating Method (IRB) to conduct credit risk assessments on accredited institutions, becoming one of the first regions in the world to implement the Basel II. In 2013, the Hong Kong Monetary Authority began to implement the Basel III in stages to further strengthen supervision of the banking industry.
On the other hand, after the Lehman incident in the United States in 2008, while continuing the prudent regulatory thinking, the Hong Kong Monetary Authority and the China Securities Regulatory Commission strengthened supervision of financial institutions' ethical behavior, strengthened information disclosure and consumer protection, and emphasized that behavioral norms are more important than products. Since 2011, the supervision of ESG (environmental, social and governance) in Hong Kong stocks has been continuously strengthened, from "suggested disclosure" to "normal disclosure" and "completely mandatory disclosure", and has continued to align with the highest international standards, and the regulatory system has become more mature.
In terms of connecting with the mainland, in 2020, the People's Bank of China, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange jointly issued the "Opinions on Financial Support for the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area", which proposed 26 specific measures from five aspects: promoting cross-border trade and investment and financing facilitation of the Guangdong-Hong Kong-Macao Greater Bay Area, expanding the opening up of the financial industry, promoting the interconnection of financial markets and financial infrastructure, improving the innovation level of financial services in the Guangdong-Hong Kong-Macao Greater Bay Area, and effectively preventing cross-border financial risks. The leading ideas of the "Outline of the Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area" on the financial industry are specifically implemented in the fields of banks, securities, insurance, etc.
From the perspective of regulatory structure, currently, Hong Kong's regulatory agencies mainly include the Hong Kong Financial Regulatory Authority (HKMA), the Securities and Futures Commission (SFC) and the Insurance Regulatory Authority (Insurance Authority), which are responsible for supervising the banking industry, securities and futures industries and insurance industries respectively. The industry self-discipline institutions in the banking industry, securities industry and insurance industry are the Hong Kong Banking Association, the Hong Kong Exchange and the Hong Kong Insurance Industry Association respectively. The SAR government plays the role of managers in financial supervision, while industry self-discipline institutions focus on the control and review of internal risks.
"Since the 25 years since the return, with the implementation of the Belt and Road Initiative and Greater Bay Area policies, it has promoted the economic connectivity between the mainland and Hong Kong. The upgrading and development of the mainland economy will also help the further activity of the Hong Kong stock market." Zhang Ting, CEO of Huasheng Securities, told reporters, "The future opportunities of Hong Kong stocks are closely related to the development of the mainland. As long as the complementary cooperation continues, it will benefit investors in both places at the same time."
public information shows that from 2014 to 2017, the Hong Kong Stock Exchange has successively launched the Shanghai-Shenzhen-Hong Kong Stock Connect and Bond Connect. The opening of the interconnection mechanism has led to the average daily turnover of the Hong Kong stock market from about 86 billion Hong Kong dollars to more than 120 billion Hong Kong dollars, and has stabilized at around 130 billion Hong Kong dollars recently.
New opportunities for brokers: a bridgehead for overseas allocation of Chinese customers
It is worth noting that thanks to the rapid development of China's economy and the continuous deepening of interconnection between the mainland and Hong Kong, Chinese brokers that have worked in Hong Kong for more than 30 years have also grown into the backbone of the Hong Kong financial market in the past decade.
GF Securities Development Research Center pointed out in its relevant research report that if the matrix is divided by product and customer ownership, the usual path for the development of international business of Chinese securities companies is: the initial strategy includes helping mainland customers to develop overseas business and helping overseas customers invest in China. Then, based on a certain amount of customer base, comprehensively explore overseas markets.
From the perspective of business segments, the current business of listed Chinese securities firms in Hong Kong can be mainly divided into five major sectors: brokerage business (license number 1 and 2), investment banking business (license number 6), asset management business (license number 9), loans and financing (license number 8), and financial products, market making and investment business.
GF Securities further pointed out that the rapid development of Chinese securities companies' Hong Kong business is due to the increase in overseas allocation needs of Chinese customers, the continued overseas financing needs of Chinese companies, and the increase in investment in Chinese products brought about by the gradual opening of China's capital market. It has increased its attractiveness to overseas customers, and the shrinking of business of international banks after the financial crisis in the environment of stricter supervision.
In addition to domestic securities companies, Hong Kong local licensed securities companies have also achieved great development over their years of history. In the view of industry insiders, in the current situation of the interconnected development of Hong Kong in the mainland, every brokerage firm should not miss this opportunity in the market.
"Hong Kong's biggest advantage is the financial market, and the mainland has advanced technology and excellent talents." Zhang Ting mentioned that Huasheng Securities is composed of teams from the mainland and Hong Kong. On the one hand, it makes good use of the mature Internet technology in the mainland, and on the other hand, it uses Hong Kong's financial market experience. After the two advantages are combined into one, it brings more convenient and faster services to investors, and at the same time accelerates the interconnection of the financial markets between the two places.
Futu Securities introduced to reporters that the company is allowing Hong Kong investors to further understand the mainland market through more investment education content. "We have made Hong Kong investors more understand the mainland market and mainland enterprises through a large amount of investment education content and information, and make investors more willing to invest in the mainland market. At the same time, the company is constantly committed to improving user experience, smoothly connecting all levels of information, investment education, communication, and transactions to form a more efficient cycle. We hope to use the power of technology to allow Hong Kong investors to better understand the mainland market from multiple forms and perspectives."
"With the development of mainland new economy enterprises and the increase in the per capita GDP of the mainland, overseas asset allocation has become a major trend." Zhang Ting said that although the global stock market has been surging in recent years, with China launching a series of economic stabilization policies this year and the return of Chinese stocks listed in the United States, more and more celebrity fund managers are optimistic about the Hong Kong stock market. The Hong Kong market will have more opportunities and wealth to look forward to in the future.
