Editor's note: China's securities regulator (CSRC) announced measures to boost cooperation between the capital markets of the Chinese mainland and Hong Kong, among which, supporting the listing of leading mainland companies in the Hong Kong market and expanding the scope of eligible exchange-traded funds (ETFs) under the Shenzhen-/ Shanghai-Hong Kong Stock Connect schemes have attracted the public's attention. What is the impact of these measures? Will the rebound in the Hong Kong stock market continue? Regarding these topics, we have invited Zhang Tianze, Director of SCLA National Development Council, Lu Bingjun, Chief Strategist of Futu Securities International (Hong Kong) Limited, and Huang Dazhi, Researcher of Star Atlas Institute of Finance, to bring their comments and analysis.
【Anchor】Hello, everyone! We can see that the Hong Kong stock market rebounded significantly last week, and UBS Group AG even raised its rating on the Hong Kong stock market to overweight. This seems to imply that a trend of valuation correction in Hong Kong stocks is taking shape. First of all, Mr. Zhang, is this round mainly driven by the five measures that will benefit Hong Kong? In the long term, can Hong Kong stocks continue the recent positive trend?
【Zhang】I think the recovery in the Hong Kong stock market is closely related to a series of new policies announced recently. These policies have sent positive signals to the market, especially the initiatives to enhance trading convenience and market accessibility, such as the expansion of the ETF product range and the inclusion of REITs in the Hong Kong Stock Connect. In the short term, these policies have effectively boosted market sentiment and pushed up stock prices. However, we also need to recognize that market reactions are often based on expectations, and it may take a longer period of time for the policies' actual effects to be fully realized.
In the long term, these policies aim to strengthen the connections between the Hong Kong and mainland China markets and to improve investor awareness and participation in the Hong Kong market. These policies structurally enhanced the attractiveness of the Hong Kong market and are expected to facilitate sustained capital inflows. However, the continuation of the uptrend in Hong Kong stocks will depend on the stability of the global economy, market sentiment and continued policy support. In addition, external factors such as the global trade policy and interest rate environment will also have a significant impact on Hong Kong stocks.
【Anchor】Alright. Mr. Huang, what do you think about the recent performance of Hong Kong stocks and future trend?
【Huang】After the promulgation of the policy, we can see a trend of Southbound Capital flowing into the Hong Kong stock market. This is one of the most important reasons why the Hong Kong stock market has performed relatively well in recent days. In the medium to long term, the introduction of these measures will not only help enrich the variety of traded products but also provide more choices for foreign investors and those from Mainland China. In terms of products and trading channels, these policies can help promote the integration of the Hong Kong Stock and A-share capital markets and the internationalization of the RMB. At the same time, the policies will strengthen the position of Hong Kong as a financial center. Whether in the short term or medium to long term, the policies can solve the Hong Kong stock's liquidity problem to a certain extent, and help the Hong Kong stock and Hong Kong's capital markets continue to improve and rebound.
【Anchor】Yes. We can see that among these five measures to deepen cooperation with Hong Kong's capital market, "Supporting the listing of leading mainland companies in the Hong Kong market", has aroused the greatest concern and discussion. Mr. Zhang, what do you think this mean for mainland enterprises and the Hong Kong IPO market? Will it bring a rush of IPO share subscriptions?
【Zhang】Supporting the listing of leading mainland enterprises in Hong Kong not only provides these enterprises with more financing methods but also enhances the quality of the Hong Kong market and investor confidence. In the long term, this will help enhance the global influence of the Hong Kong stock market. For mainland enterprises, through the international platform of Hong Kong, they can have access to a wider range of global capital while enhancing their international brand image.
【Anchor】Regarding the listing of mainland enterprises in Hong Kong, last week, the mainland milk tea brand Chabaidao was listed on the Hong Kong Stock Exchange. However, the biggest drop was 38% in Hong Kong debut. What do you think about this? What does this reflect about the things that need to be paid attention to for mainland enterprises to list in Hong Kong?
【Zhang】I think this may reflect investors' doubts about its business model or market prospects. In addition to capital, mainland companies listed in Hong Kong need to pay special attention to corporate governance and information disclosure and comply with international market requirements. Enterprises must ensure smooth communication with international investors and accurately express their company values and development strategies.
【Anchor】Alright. Mr. Lu, what do you think about the impact of the relevant measures on mainland enterprises and the IPO market in Hong Kong?
【Lu】I think the realization of the existing IPO mechanism in Hong Kong has played a very supportive role for many enterprises, especially those from the Mainland. Therefore, we can see in the past that many leading mainland enterprises have already been listed successfully in Hong Kong. I think the measures published this time, have not, as imagined, made it possible for all the leading enterprises in the Mainland to come to Hong Kong for listing, but have encouraged some of the smaller leading enterprises (to come to Hong Kong for listing). For example, they may not meet some requirements for mainboard listing in Hong Kong, but now they may be exempted from the policies and can apply for listing directly. These will help some of the smaller and medium-sized leading enterprises in the Mainland to get listed. But for investors, because capital is very important to the Hong Kong investment market, especially since the requirements for the size of the market value is relatively high, whether this will bring a rush for IPO shares subscription in Hong Kong or not, I think that (the market) has not reached this level from a preliminary view.
【Anchor】Alright. What do you think, Mr. Huang? What are the things that mainland enterprises should pay attention to when going to Hong Kong for listing?
【Huang】Some of the leading companies may not be particularly suitable for listing in the A-share market. Therefore, those leading enterprises will choose Hong Kong for listing. On the one hand, listing in the Hong Kong market is conducive to enhancing in attracting capital. On the other hand, after the leading companies in Mainland China go listed in Hong Kong, they can also standardize the development of the company, and enhance brand awareness. It is beneficial for the subsequent development of these companies.
【Anchor】Alright. Mr. Zhang, regarding the other contents of the five measures, what is your assessment of their impact on RMB internationalization, capital flows, and so on?
【Zhang】The policy to expand the coverage of ETFs and REITs will increase the depth and breadth of the market and attract more professional and institutional investors, which is undoubtedly great news for ETF market in Hong Kong. At the same time, these initiatives will also help promote the internationalization of RMB.
【Anchor】Alright. Mr. Lu, what specific impact do you think the five measures will bring?
【Lu】My understanding is that the listing of mainland enterprises will also encourage mainland capital to invest in Hong Kong, such as real estate ETFs and so on. So the impact on the internationalization of RMB may not be so great. But the impact on the liquidity of the mainland and Hong Kong's capital will still be relatively big. Among the five measurements, I think the biggest impact on the market is the inclusion of real estate ETFs, that is, real estate ETFs are eligible for trade under the Hong Kong Stock Connect. Now, the valuation level of Hong Kong real estate ETFs is relatively low, but the dividend is very high, with some stock dividends reaching 10%. The dividend rate is very important for mainland investors, so these ETFs will be favored by mainland investors and will also have a positive effect on these sectors. I believe Hong Kong's real estate ETFs will be favored and invested by mainland capital in the future.
【Anchor】OK, Mr. Huang, what do you think about the actual impact of the relevant measures?
【Huang】The five measures are cooperating with the new guidelines to expand and optimize the cross-border interconnection and intercommunication mechanism of the capital market.
These measures also have great significance in consolidating Hong Kong's position as an international financial center. For example, the first measure of expanding the scope of eligible ETFs under the Shenzhen-/ Shanghai-Hong Kong Stock Connect schemes. This has important significance for the construction of Hong Kong as an international asset management center. This expansion of the underlying includes a reduction in the ETF size requirement and a reduction in the weighting requirements. The relaxation and reduction of these requirements is very conducive to the inflow of Northbound and Southbound capital, which can significantly expand the scale of Northbound and Southbound capital. At the same time, the inclusion of REITs into the Shenzhen-/ Shanghai-Hong Kong Stock Connect will enrich the variety of transactions in these stock markets. In the medium to long term, as the size of the domestic REITs market grows, there is still a lot of room for development. After REITs are incorporated into the schemes, the expansion of product categories in the Shenzhen-/ Shanghai-Hong Kong Stock Connect can help investors from both Mainland China and Hong Kong to realize a more diversified asset allocation. The third measure of including RMB stock trading counter under the Southbound trading of Stock Connect can also help the internationalization of the RMB and leverage Hong Kong's position as an international financial center. In fact, after the Hong Kong Stock Exchange implemented the dual-counter model of Hong Kong Dollar and RMB in 2023, more and more companies have already opened RMB counters. Although it is limited to offshore RMB trading, in fact, the exchanges and clearing in both places have already included RMB counter trading in the Hong Kong Stock Connect. The opening of the dual-counter mode will enhance the convenience of southbound trading for southbound investors. With the subsequent relevant measures, it will help to increase the turnover of RMB counter. In terms of optimizing fund account arrangements, it can also meet the diversified allocation needs of investors from both places.
【Anchor】Alright, Mr. Zhang. What are the long-term implications of these five measures for Hong Kong in consolidating and enhancing its status as an international financial center? How will they help Hong Kong remain competitive in the global market?
【Zhang】Through in-depth capital market cooperation, Hong Kong's position in the global financial market will be more solid. In the long term, the five measures will significantly enhance the depth and competitiveness of the Hong Kong market. By providing more diversified investment products and optimizing the trading environment, Hong Kong will be able to better serve global capital and attract international investors. This will not only help Hong Kong consolidate its position as Asia's financial center but will also enable it to play a more important role in the global financial arena.
【Anchor】OK, thank you. That's all for this episode. Remember to follow us on YouTube or download our APP. I'm Yunfei Zhang, thanks for watching, and see you next time.
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