July 1, 2017 marks the 20th anniversary of Hong Kong's return to China. Over the past 20 years, the Hong Kong stock market has delivered outstanding results. As an international financial center, Hong Kong continues to be one of the world’s first choices for listing.
Statistic shows that over the past 20 years, the capitalization of companies listed on the Stock Exchange of Hong Kong (SEHK) added 7.9 times to nearly 29 trillion HK dollars. Over the past 8 years, 5 years saw the amount of funds raised via IPO in Hong Kong topping the world
Another highlight over the past 20 years is that Hong Kong becomes increasingly close with the mainland market. The number and proportion of Chinese-funded companies listed in Hong Kong have increased remarkably. These companies have injected vitality into the Hong Kong market, and the latter has facilitated them to grow better. In addition, mutual market access between the Hong Kong and mainland capital markets, including Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, and bond connect, has brought the mainland and Hong Kong closer. More and more companies have been listed both on the mainland and Hong Kong.
Chinese enterprises are mainstay of Hong Kong stock market
The Hong Kong stock market has undergone three major changes over the past 20 years: source of listed companies, composition of investor and rapid expansion of market size.
Statistics from the SEHK show that the proportion of Chinese-funded stocks in Hong Kong is growing. As of May 31, the capitalization of H shares (companies incorporated in the Chinese mainland that are listed in Hong Kong) reached 5.94 trillion HK dollars, accounting for 21.07 percent of the total HK market capitalization. The capitalization of red chips (companies based in the China mainland that are incorporated internationally and listed in Hong Kong) was 5.3 trillion HK dollars, accounting for 19.1 percent of the total capitalization. The capitalization of both H shares and red chips was 11.34 trillion HK dollars, accounting for 40.17 percent of the total market capitalization.
While back in 1997, the capitalization of H shares was only 48.62 billion HK dollars, and that of red chips was 472.9 billion HK dollars, accounting for 1.52 and 14.77 percent of the total market capitalization, respectively. Their altogether capitalization was 521.5 billion HK dollars, accounting for 16.29 percent of the total market capitalization, which was 2 times of that in 1996. This shows that Hong Kong’s return has greatly boosted the confidence of investors and Chinese enterprises.
The market capitalization of HK-listed Chinese enterprises in 2017 was nearly 22 times of that in 1997, if factoring out exchange rate.
The number and proportion of Chinese enterprises listed in Hong Kong have risen rapidly since 1997. The capitalization of H shares and red chips accounted for over 20 percent of the total market capitalization of Hong Kong stocks in 1999, over 30 percent in 2005, over 40 percent in 2006, over 50 percent in 2007 and hit a record high of 54.57 percent in 2008. Although the number fell slightly, it still remains above 40 percent.
According to an industry insider, the data is only based on the official data from the Hong Kong Stock Exchange, but not includes Chinese-funded private companies (those small and medium-sized private enterprises that were registered in Hong Kong, but carry out most of their business in the mainland). If including these enterprises, the proportion has already exceeded 60 percent.
In addition, as for the Hong Kong stock market itself, at the end of 1996, there were only 583 listed companies in Hong Kong, with a market value of 3.48 trillion HK dollars and a full year turnover of 1.41 trillion HK dollars (equivalence to one day’s turnover of the A-share market when it was at the peak of the bullish run in 2015). However, at the end of 2016, there were 1,973 listed companies in Hong Kong, with a market value of 24.76 trillion HK dollars.
Win-win situation is stable
A market participant said that in fact after years of integration and development, Chinese-funded enterprises and the Hong Kong market have achieved a win-win situation. Chinese-funded enterprises have brought vitality to the capital market in Hong Kong, and in return Hong Kong helped Chinese-funded enterprises to finance so that they can develop more rapidly.
Looking back to 1993, Tsingtao Brewery Company Limited (600600.SH; 00168.HK) conducted IPO in Hong Kong, becoming the first mainland company listed in Hong Kong. Later, Sinopec Shanghai Petrochemical Company Limited (600688.HK; 00388.HK) and Sinopec Yizheng Chemical Fibre Limited Liability Company followed its step to list in Hong Kong. However, it was still a small number.
In October 1997, China Mobile Limited (00941.HK) listed in Hong Kong, becoming the first blockbuster IPO after the return of Hong Kong. It financed as high as 32.363 billion HK dollars. Subsequently, Huadian Power International Corporation Limited (01071.HK), Beijing Capital International Airport Company Limited (00694.HK), PetroChina Company Limited (00857.HK; 601857.SH), China Petroleum & Chemical Corporation (00386.HK; 600028.SH) and CNOOC Limited (00883.HK) went listing in Hong Kong. In June 2000, China Unicom Limited (00762.HK) listed in Hong Kong, raising a total amount of 43.6 billion HK dollars.
Entering the year of 2001, mainland companies listing in Hong Kong were no longer limited to state-owned enterprises, and private enterprises began to conduct IPO in Hong Kong at a faster pace. In December 2001, Zhejiang Glass Co., Ltd. raised 600 million yuan by issuing 170 million H shares. This is the first case that mainland private enterprise listed in Hong Kong. As policies relaxed, more businesses and companies from emerging industries went listing in Hong Kong.
One of the best examples is the tech star Tencent (00700.HK). Although Tencent did not list in the A-share market, it has grown into a leading Internet company. Its share price has risen more than 400 times since its listing in Hong Kong. Many of its financial indicators still remain high growth. Its stock prices keep creating record high.
Connection between mainland and Hong Kong become increasingly close
Analysts pointed out that since 2014, a series of events, including the launch of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect and the flow of mainland insurance funds and mutual funds into Hong Kong, have brought more mainland capital to the Hong Kong stock market, providing ample support for its liquidity.
Statistics from the Institute of Finance and Securities, Wuhan University of Science and Technology show that many indicators have changed after the launching of Shanghai-Hong Kong Stock Connect in 2014. In terms of the proportion of transactions made by non-Hong Kong local investors, British investors accounted for 32 percent (leading all the investors) 20 years ago, US investors 30 percent, Japanese investor 8 percent and Chinese mainlander 0.6 percent. Before the introduction of Shanghai-Hong Kong Stock Connect in 2014, transactions of non-Hong Kong local investors were mostly made by British and US investors, but the proportion fell slightly to 28 percent and 26 percent, respectively; while the proportion of Chinese mainland investors rose to 13 percent, that of Signore investors rose to 10 percent, and that of Japanese investors fell to 1 percent. After the launching of Shanghai-Hong Kong Stock Connect, the proportion of trading volume from Chinese mainland investors surged to 22 percent in 2015, and that of other countries have little change.
In terms of investor structure, the proportion of transactions made by individual investors in Hong Kong was 36 percent 20 years ago, fell to 37 percent in 2004, then came around at 30 percent from 2005 to 2009, declined to 26 percent and 27 percent in 2010 and 2011 and eventually dropped to an all-year low of 21 percent in 2012. Yet after the introduction of Shanghai-Hong Kong Stock Connect in 2014, the proportion began to rebound. The number recorded 25 percent in 2014, and 27 percent in 2015. Currently, the proportion of transactions made by institutional investors still accounted for over 70 percent.
Analysts pointed out that China's economy maintained high growth in the past 20 years. Industries and enterprises saw their competitiveness increase significantly. This makes the A-share market and Hong Kong stock market continue to grow.
In recent years, exchanges between the A-share market and Hong Kong stock market increased significantly. Industry analysts pointed out that the introduction of Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect not only provides a bridge to connect investors from the mainland and Hong Kong but also promotes the bi-directional flow of listed companies between the mainland and Hong Kong. Industry leaders that have listed in Hong Kong are actively seeking for IPO in the A-share market by privatization, splitting or other means.
Translated by Coral Zhong
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