Attractiveness of the Hong Kong Stock Exchange Amidst the Current Landscape

Why Large Companies Continue to List in the Hong Kong Stock Exchange

HONG KONG — Known as a premier hub for finance and business in Asia, Hong Kong is one dynamic city and home to the third-largest stock exchange and top initial public offering (IPO) in 2018. In that year alone, the Stock Exchange of Hong Kong (HKEx) listed 2,315 companies with a total of HKD29.9 trillion in terms of market capitalisation. As the gateway to Mainland China and other Asian markets, Hong Kong offers a unique value proposition that allows investors and business owners to be part of a world-class market.

However, the past six months of protests on the city’s streets due to the 2019 Hong Kong extradition bill have affected the perceptions on Hong Kong’s financial stability. Although the bill was withdrawn on October 23, protests continued in Hong Kong. As such, investors are wary of the city’s financial and stock exchange stability. Despite social unrest, the city’s financial markets remain resilient. A recent survey shows that the number of offshore companies and Mainland businesses increased by 9.9%. On the same note, Julius Baer, leading Swiss private banking group, recommends investing in Hong Kong’s stock market since this is the best time to invest, when prices are low and the potential to rebound post-crisis is high. 

The company’s Chief Investment Officer for Asia stated that investors should widen their Hong Kong stocks portfolio since it would rebound in the next three to eight years. Rather than seeing the situation in a pessimistic light, the company believes that it presents opportunities for investors and business owners to venture in the HKEx. In totality, Hong Kong has created a strong financial and economic foundation which allows it to withstand challenges brought upon by internal or external forces.

Case Study: Anheuser-Busch InBev and Alibaba

Invest Hong Kong (InvestHK) is the city’s government body tasked to promote and nurture investments in Hong Kong. Though the city is facing challenges in its political and social aspects, InvestHK is doubling its efforts to restore the global business community’s confidence in the city. Fortunately, these efforts have yielded results— Anheuser-Bush InBev (AB InBev) and Alibaba have decided to list in the HKEx.

Known for its Budweiser beer, AB InBev became the world’s largest brewer through a series of acquisitions. Last year, the company was able to book a net profit of USD 959 million in Asia. In September this year, it debuted on the HKEx listing and opened at HKD 27.4 per share on its first day of trading. Its Budweiser APAC stock did well on its debut as it closed 4.4% higher at HKD 28.2. Moreover, the company was able to raise USD 5 billion after the listing of its Asia-Pacific unit in the HKEx [CNN].

Listing AB InBev in the HKEx can help boost investors’ confidence in the bourse and stabilise the city’s finances while the AB InBev could benefit from Hong Kong’s huge market, striking a win-win situation for both parties.  

Alibaba in China

Alibaba, a Chinese multinational conglomerate known for its reputation in e-commerce, retail, internet and technology, announced its plans to list in the HKEx earlier in 2019. However,  due to the situation in Hong Kong, the company has since then postponed their plan. Alibaba is Asia’s most valuable listed company, with a market capitalization of $486 billion based on the price of its New York Stock Exchange-traded shares. As of September 30, it had $33 billion in cash and equivalents on hand and only $21 billion in debt. The planned listing in HKEx will be the second listing of the company. It will make company shares more accessible to Chinese investors, and offer some insurance against the risk of being delisted in New York in the midst of the US-China trade war.

When AB InBev raised USD 5 billion after its listing, Alibaba resumed the plan and expects to list in the HKEx in November. The said company targets to raise USD 10 to USD 15 billion in the bourse. This will boost the company’s capital, and at the same time, help Hong Kong solidify its reputation as a significant capital market hub [ArgusJournal].

The political instability in the city does not dampen large companies – even Saudi Aramco, a state-owned oil company, is planning to have an IPO in the HKEx (the company has decided to list domestically in December). Despite the circumstances in Hong Kong, the city offers promising opportunities for investors and businesses to list on its stock exchange. Here are five reasons why:

Premier Business Hub in Asia

Hong Kong’s geographic location allows businesses to access Asian markets easily. The city is home to over 8,000 companies and the government is keen on developing the city’s financial competitiveness. The Belt and Road Initiative is set to link Mainland China with countries across Asia, Europe and the Middle East. Businesses can also benefit from the opportunities that will arise from the Guangdong-Hong Kong-Macao Bay Area since these areas will be economically integrated to create a world-class city cluster. This unique value proposition makes Hong Kong an excellent choice for businesses and investments.

Funded Jumbo IPOs

Hong Kong accommodates IPO transactions of all sizes and can secure healthy investor demand to price a successful transaction. Particularly, the stock market is deep and liquid enough to fund jumbo IPOs. The mentioned listings of Alibaba and AB InBev are two examples of jumbo IPOs. 

Global Investor Base

Hong Kong has long been the region’s financial hub. Industries such as banking, securities and insurance adhere to the best global practices and standards, giving confidence to investors. HKEx is therefore an attractive platform to list; especially for Chinese companies, this is a lucrative opportunity. A global and diverse investor base means more capital inflows to the company,  which improves the performance of the business.

Open Business Environment

What makes Hong Kong attractive to many companies is its open environment to commerce and business activities. The city is also recognised as one of the world’s most competitive  economies due to its favourable business environment, economic performance, government efficiency and robust infrastructure. These attributes attract investors and business owners, and enable them to thrive and flourish.

Stock-Connect Scheme for Mainland China Investors

The Stock-Connect scheme is a collaboration between Hong Kong, Shanghai and Shenzhen stock exchanges. This platform provides Mainland Chinese investors with convenient and effective cross-border markets, and also the access to the global market. That is why several Chinese conglomerates are enticed to list their companies in the HKEx to maintain their competitive leverage in the international market.

DesFran’s Business Advisory Solutions

Hong Kong’s current political instability can be a source of  worry for potential investors. Although the city has a multitude of qualities that are attractive to business owners, it is ideal to seek advisory solutions from professionals who are well-versed in Hong Kong’s business climate.

DesFran’s extensive network and office in Hong Kong allow us to gain local insights on Hong Kong’s business climate. Our team of professionals are able to conduct analyses  and give practical solutions to company owners and investors who are looking to venture to an offshore market.

Contact us today to learn more.

References

Hong Kong Stock Exchange, En.wikipedia.org

Why Hong Kong, Investhk.gov.hk

Why List in Hong Kong, Hkex.com.hk

Hong Kong moves to shore up investor confidence, Straitstimes.co

About the Author

Jessie Kang is Strategic Communications and Research Intern at DesFran. Jessie has been in the field of research for almost 10 years, and will be completing her PhD studies in Nanyang Technological University soon. With keen interest in cultural studies, Jessie conducts research in narrative studies and postmodernist fictions as part of her academic work. The internship at DesFran allows Jessie to apply her research experience and skills in the commercial setting while learning more about the finance industry.

 

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