With a history of openness, a strong focus on financial services and sizable investments in technology and other infrastructure, Hong Kong Exchanges and Clearing hopes to leverage its historical advantages to become a gateway for Western investment in the Chinese economy.
China’s booming economy is hardly a secret. The world’s fourth largest economy in terms of gross domestic product, it is forecast to see near double digit growth in coming years.
For decades, the closest foreign investors could get to a direct stake in the Chinese economy was to invest in Hong Kong. Now, with increasing openness in mainland China, that’s no longer the case. Facing growing competition for Western investment, Hong Kong Exchanges and Clearing (HKEx) believes its history is its strongest strategic advantage.
With an open, free economy, close ties to China and a history of investing in the telecommunications and information technology infrastructure needed to operate world class financial services, Hong Kong Exchanges and Clearing believes it is well positioned to capitalize on the China juggernaut, says CEO Paul Chow.
"HKEx is well positioned to capialize on the China juggernaut" Paul Chow, CEO at HKEx |
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Chinese companies, he notes, are already comfortable listing on HKEx. Around 30 percent of the listed companies have ties to Chinese enterprises. The growth of those companies is one reason for the record setting year the exchange experienced in 2005, with a daily value of USD 18.3 billion, up from USD 6.7 billion in 2002. |
“You can see the growth we’ve experienced in that four year span,” says Chow. He points out that the exchange is now fourth in the world in terms of funds raised through new offerings. “We continue to have major IPOs from mainland China choosing to list here,” he says.
Recent examples include the China Construction Bank, which at around USD 9.1 billion, was the largest IPO in the history of Hong Kong and one of the largest worldwide. Energy firm China Shenhua and shipping firm China Cosco added to the activity, with more IPOs lined up for 2006.
Derivatives are seeing China related growth as well. About half of all futures and options traded on HKEx are related to Chinese firms, Chow says.
“We have the advantage of being close to China,” he says. “We understand the history, culture and
economy better than many countries. We have fund managers and research analysts whose job is to follow mainland China development.”While other financial centers in the region are bidding to take a bite out of the China trade, Chow says Hong Kong has several advantages, from its use of business English and a favorable tax environment to its long history of investment in modern IT and telecommunications infrastructure.
“Our markets are transparent,” Chow says. “We operate very fair markets with little restriction on investment flow and a free flow of news and information. We also have the rule of law, which is independently administered by impartial courts. Hong Kong is a very open city.” How will Hong Kong’s role evolve as China develops more robust markets of its own and as others in the region, from the recently consolidated exchanges in Korea to Singapore, move to capitalize on the same trends? 
“I have no crystal ball about when or how soon China will further deregulate its market,” Chow says. “What I know is that we have to be ready to deal with increased volume. I’m not concerned about other exchanges. I’m more concerned about the challenge of continually improving ourselves to meet the opportunities.”
The challenge: Use the merger between Hong Kong Futures Exchange and Hong Kong Stock Exchange to add to HKEx capabilities for handling more trades across more products and to give Western investors more access to China related opportunities.
The solution: In 2004, HKEx began using the SECUR system in addition to the CLICK XT platform, creating a consistent
platform for trading, clearing and settlement for all derivatives products trading in Hong Kong.
OMX and HKEx: Partnering for the future
The Hong Kong Futures Exchange was one of OMX’s first clients in Asia. It has been using technology from OMX since
1994, several years before it merged with the Hong Kong Stock Exchange to create HKEx.
In 2004, HKEx added the SECUR system to the previous CLICK XT system. Ulf Carlsson, General Manager for North Asia at OMX, says that OMX now powers systems that handle trading, clearing and settlement for all derivatives products trading in Hong Kong.
HKEx CEO Paul Chow says the exchange has a positive relationship with OMX, one he expects will be increasingly important as the exchange moves to ensure its readiness for the continued strong growth of China’s economy that is being predicted.
“Having a good partner is important when you are trying to expand a business,” Chow says. |
| OMX in China
Institutions in mainland China are turning to OMX for its securities industry expertise. Since 2004, in keeping with a memorandum of understanding, OMX has been exchanging information with SD&C (China Securities Depository and
Clearing Corporation Ltd.) about OMX’s experiences with financial transactions that benefit the Chinese market.
OMX recently secured a contract in China, when it reached agreement with CFETS, the China Foreign Exchange Trade System and National Interbank Funding Center, a subsidiary of People’s Bank of China, to provide financial training theory and best practice experience of financial derivatives in the foreign exchange and fixed income areas. The training activities will support and help speed up China’s imminent move towards the advanced international derivatives market in which OMX is the world’s leading supplier of technology and services.
OMX also has a memorandum of understanding with the Shanghai Stock Exchange, whereby the exchanges have agreed to share information to promote the maintenance of well- functioning securities markets. |
By Keith Regan Photo Richard Jones
MarketView 2006:2
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