Multiple heavyweight policy plans have been released
Hong Kong Unveils Major Policy Plans.
On the 16th, Chief Executive of the Hong Kong Special Administrative Region, John Lee, delivered the "2024 Policy Address" (hereinafter referred to as the "Policy Address"), which included significant measures in the financial sector, such as optimizing the securities market, deepening interconnectivity, enriching offshore RMB business, and establishing an international gold trading market.
The Hang Seng stock market experienced significant fluctuations on the same day, with the Hang Seng Index closing down by 0.16% and the Hang Seng Tech Index down by 1.09%. Institutional analysts believe that the recent large fluctuations in the Hang Seng stock market are mainly influenced by changes in policy expectations, the marginal tightening of overseas liquidity, and other factors. However, in the long term, as the economic outlook for China improves and relevant major policy plans in Hong Kong are implemented, there is still room for development in the Hang Seng stock market.
Promoting Major Mainland Enterprises to List in Hong Kong
In the "Policy Address," John Lee proposed several measures to further optimize the securities market.
The first is to explore new overseas funds and implement the listing of exchange-traded funds (ETFs) that track Hong Kong stock indices in the Middle East to attract local capital to allocate to Hong Kong stocks. The second is to strive for corporate listings, leveraging the advantages of interconnectivity with the mainland market to attract international companies to list in Hong Kong, while also promoting major mainland enterprises to list in Hong Kong, aiming to achieve more iconic public offerings in the short term. The third is to optimize the listing approval process, with the Hong Kong Securities and Futures Commission and the Hong Kong Exchanges and Clearing Limited to announce specific measures to further optimize the listing approval process, making the approval time for listing applications more certain. John Lee mentioned that Hong Kong plans to establish a HKD 10 billion guiding fund for the innovation and technology industry.
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First Financial Daily noticed that the number of mainland enterprises going public in Hong Kong this year has significantly increased. According to Choice data, calculated based on the latest announcement dates, 134 enterprises have submitted applications to the Hong Kong Exchanges and Clearing Limited this year, far exceeding the 87 of the same period last year. Among them, more than 60 enterprises that submitted applications are registered in the mainland. Among the mainland enterprises applying to list in Hong Kong, there are well-known domestic consumer enterprises such as Mao Ge Ping and Zhou Liu Fu, as well as "hard technology" enterprises such as Zheng Xin Optoelectronics and Innoscience.
The person in charge of Shenzhen-Hong Kong Dragon (Dongguan) Capital Investment Co., Ltd. told the reporter that recently, the review of A-share listings has tightened. Compared to other markets, the Hong Kong stock market is close, language communication is smooth, and there is policy support, so some companies that failed to list on A-shares have chosen to switch to Hong Kong stocks.
A person from a Hong Kong securities firm said that this year, the willingness of many mainland enterprises to list in Hong Kong has increased, partly because the fundamentals of the Hong Kong stock market have significantly improved compared to last year, and liquidity issues have also been alleviated.
Zhang Yi, CEO and Chief Analyst of iiMedia Research, believes that listing in Hong Kong is a good exit path for many overseas capitals investing in mainland enterprises. A large number of Chinese enterprises are deploying in overseas markets, and listing in Hong Kong is more convenient. The number of mainland enterprises listing in Hong Kong is likely to continue to increase in the future.Mainland large enterprises have become one of the important drivers for the recovery of the Hong Kong stock market IPO. KPMG recently released a report stating that by the end of the third quarter of 2024, Hong Kong has once again joined the ranks of the world's top five IPO markets, mainly driven by the third-quarter listing of mainland large home appliance manufacturer Midea Group in Hong Kong. This is the largest IPO project in Hong Kong since 2022, with an IPO fundraising amount of 30.668 billion Hong Kong dollars.
On October 15, at the first Global Family Office Forum held by Standard Chartered Global Private Banking in Hong Kong, Hong Kong's Financial Secretary Chan Mo-po said that since the mainland announced economic stimulus plans, the Hong Kong stock market has recently rebounded, and European and American investors have shown a strong net buying trend. He also mentioned that two ETFs will be listed on the Saudi stock exchange later this month, investing in the Hong Kong stock market.
In addition, the Policy Address emphasized that the Hong Kong Securities and Futures Commission and the Hong Kong Stock Exchange will further improve market efficiency and reduce transaction costs, including reviewing the deposit arrangements for margin, optimizing margin and collateral requirements, etc.
The Hong Kong Stock Exchange has previously taken a number of measures to improve market efficiency. In November last year, the Hong Kong Stock Exchange launched a brand-new new share settlement platform FINI, shortening the interval between the new share pricing day and the trading day from five trading days to two trading days; in June this year, the Hong Kong Stock Exchange introduced a treasury stock mechanism, providing more flexibility for listed companies to manage their capital structure through stock buybacks and reselling treasury stocks.
Hong Kong Stock Exchange CEO Chan Yat-ting also revealed at a recent meeting that in response to the market's demand for rapid capital inflows and outflows, the Hong Kong Stock Exchange will issue a white paper and hold discussions on whether to implement securities trading T+1 settlement in the first half of next year.
What are the new signals in the aspects of offshore RMB and so on?
"We will continue to optimize the interconnection mechanism, strengthen the position of the world's largest offshore RMB business hub, and help the internationalization of the RMB." Li Jia-chao emphasized in the Policy Address that the main measures include continuously improving financial infrastructure, upgrading the debt instrument central settlement system to facilitate international investors to settle various assets in different currencies; improving the infrastructure of the fixed income market, such as establishing a central clearing system for RMB-denominated repurchase transactions, making the national bonds issued in Hong Kong more popular collateral in the offshore market; and continuing to study and optimize the "Cross-Border Wealth Management Pass".
Li Jia-chao said that in the future, more investment products denominated in RMB will be provided. Specifically, in terms of stocks, the Hong Kong Stock Exchange will encourage more listed companies to increase RMB stock trading counters and expand the scope of RMB stocks. In terms of bonds, the issuance of RMB bonds will be expanded, supporting more green and sustainable offshore RMB bonds to be issued in Hong Kong; striving for the Ministry of Finance to increase the scale and frequency of issuing national bonds in Hong Kong, and launching offshore national bond futures in Hong Kong as soon as possible.
Xiangsong Capital Director Shen Meng analyzed for the reporter that in recent years, Hong Kong has faced more challenges. The Hong Kong Special Administrative Region government has introduced the above measures, which are conducive to revitalizing investors' confidence in Hong Kong, forcing the transformation and upgrading of Hong Kong's financial industry, and strengthening competitiveness.
The reporter noticed that recently, several key figures in Hong Kong's capital market have frequently spoken about the internationalization of the RMB.The Secretary for Financial Services and the Treasury of the Hong Kong Special Administrative Region Government, Mr. Eddie Yue, stated on September 23rd that Hong Kong is a leading global offshore Renminbi (RMB) business hub and the largest offshore RMB liquidity pool. Hong Kong is committed to creating a diversified ecosystem to enhance the global status of the RMB, attract global capital, and foster a win-win situation.
"The internationalization of the RMB still has significant room for growth, and the cross-border infrastructure and networks required to support the RMB are continuously improving," said Mr. Calvin Chan on October 15th at the HKEX Fixed Income and Currency Asia-Pacific Summit. Faced with uncertainty and volatility in the global economy, the internationalization of the RMB can provide international investors with diversified investment opportunities and risk management.
Hong Kong is also actively discussing with mainland authorities to moderately expand the "Bond Connect" (also known as "Southbound Trading"), including broadening the scope of eligible domestic investors, such as including securities, insurance, and other non-bank financial institutions; enriching the liquidity management related to offshore investors' investment in onshore bonds, and actively researching and launching various products and arrangements, such as repurchase and collateral with onshore RMB bonds, in due course.
On September 24th, the "Southbound Trading" of Bond Connect celebrated its third anniversary. According to data from the Shanghai Clearing House, as of the end of July, 902 "Southbound Trading" bonds were held under the financial infrastructure interconnection model, with a balance of 466.25 billion yuan, showing a significant increase in both bond custody volume and quantity. This not only provides mainland investors with more diversified investment channels but also further supports the development of Hong Kong's offshore RMB bond market. Previously, the industry suggested that it could continue to consider expanding and optimizing the market maker list in a timely manner, reasonably expanding the scope of eligible assets, and increasing the number of qualified investors.
In terms of cross-border wealth management, on February 26th, the Guangdong-Hong Kong-Macao Greater Bay Area Cross-Border Wealth Management Connect 2.0 version was implemented, with several qualification thresholds for mainland investors participating in the Southbound Trading of Cross-Border Wealth Management Connect being relaxed, triggering a wave of account openings. However, the industry believes that there is still room for improvement in this business. Data from the Shenzhen Branch of the People's Bank of China shows that as of 24:00 on October 10th, the net outflow of the Cross-Border Wealth Management Connect Southbound Trading was 11.6 billion yuan, with only 7.73% of the quota used.
The Policy Address also mentioned the goal of building Hong Kong into an international gold trading center. It is known that Hong Kong's gold import and export volumes rank among the top globally. Recently, with the increasing complexity of geopolitical situations, the advantages of Hong Kong's safety and stable environment have been highlighted, attracting international gold spot storage in Hong Kong, thereby promoting gold trading, clearing, and delivery, which is conducive to promoting Hong Kong as a gold trading center.
Mr. John Lee said that the government will promote the construction of international-level gold storage facilities, expand users and investors to store and deliver physical gold in Hong Kong, drive derivative financial services such as mortgages and borrowings, and create new growth points for the financial industry. The Financial Services and the Treasury Bureau (FSTB) will establish a team to carry out the work of establishing an international gold trading center, including strengthening trading mechanisms and regulatory frameworks, promoting the application of cutting-edge financial technology, and discussing with the mainland the inclusion of gold products in the interconnection.
Regarding the "strengths" of Hong Kong's financial industry, such as insurance and wealth management businesses, the Policy Address also outlines new development directions. In terms of insurance, the Hong Kong Insurance Authority will conduct a review next year, studying the enrichment of insurance companies' asset allocation through capital requirements for infrastructure investment to help diversify risks and drive infrastructure investment in the northern capital. At the same time, it will continue to strive for large mainland state-owned enterprises and other domestic and foreign enterprises to establish captive insurance companies in Hong Kong. In terms of wealth management business, efforts will be made to promote more global funds to be managed in Hong Kong, including promoting private equity funds to explore new sales channels through the HKEX, and striving to cooperate with large sovereign funds in regions such as the Middle East to jointly establish funds to invest in assets in mainland and other regions.
The fluctuation of the Hong Kong stock market has intensified.Several major policy plans have not yet altered the downward trend of Hong Kong stocks in the past week. As of the close on the 16th, the Hang Seng Index and the Hang Seng Technology Index both ended slightly lower, with the consumer goods sector leading the decline, and transaction volume hitting a new low since September 23.
Looking at a longer time frame, Hong Kong stocks have shown significant fluctuations since mid-September. From September 24 to October 7, Hong Kong stocks rose rapidly, with an interval increase of over 26%. After the National Day holiday, the Hong Kong stock market has been fluctuating downwards. Up to now, the Hang Seng Index has fallen by 12.18%, and the Hang Seng Technology Index has dropped by 18.27%.
Zhang Yi stated that the recent large fluctuations in Hong Kong stocks are related to changes in the global economic environment, expectations for changes in Federal Reserve interest rate cuts, and the rise in U.S. Treasury bond interest rates. The strong performance of the U.S. non-farm and core CPI in September, combined with the recent marginal shift towards hawkishness in the rhetoric of some Federal Reserve officials, has driven the 10-year U.S. Treasury bond interest rate and the U.S. dollar index to strengthen marginally, exerting certain pressure on the liquidity of Hong Kong stocks. In addition, there is also pressure on the realization of corporate earnings expectations in the third-quarter reports of Hong Kong stocks, and investor confidence may still be insufficient at present. The Policy Address proposed several measures to optimize the securities market, but the short-term impact on the Hong Kong stock market remains to be observed. The current changes in the Hong Kong stock market are more influenced by short-term capital game-playing and market environment factors.
Huatai Securities' Chief Strategy Analyst Wang Yi believes that the recent large fluctuations in Hong Kong stocks are mainly influenced by changes in policy expectation differences, marginal tightening of overseas liquidity, and the rise in geopolitical risks, with the first point being the main cause.
After the "fast bull" cools down, how will the Hong Kong stock market develop in the future? Most market expectations are currently relatively optimistic.
Wang Yi believes that after the adjustment, Hong Kong stocks may now be close to the support level, with the most important factor being that, looking at policy expectations, corporate earnings expectations, and U.S. dollar liquidity expectations, the current overall domestic and international environment is significantly better than in mid-June to mid-July. Quantitative calculations show that the current risk premium of Hong Kong stocks is close to the level at that time. Before early November, Hong Kong stocks are likely to fluctuate in the current support area. Time-sensitive factors such as the U.S. election, Hong Kong's third-quarter reports, and policy verification will still disturb the market, but the emotional release may have basically arrived.
"With the Federal Reserve's interest rate cuts and positive expectations for China's economy, Chinese assets remain the preferred choice for global capital market allocation," said Feng Cuiting, Chief Analyst of Media Internet and Overseas at Cinda Securities. She expects that the third-quarter performance of Hong Kong stocks will be relatively robust, with performance disclosures concentrated in late October. The current trend of economic recovery is expected to boost the outlook for the fourth quarter and next year, which is likely to continue to catalyze the valuation of the Hong Kong Internet sector in the follow-up.