Hong Kong will become the Chinese version of Nasdaq: Why are Chinese concept stocks returning to Hong Kong? ｜01 Weekly

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Written by: Chen Xunlin

2021-02-07 21:05

The last update date: 2021-02-07 23:56

The mainland unicorn company and short video platform Kuaishou Technology (1024), which is as famous as Douyin, was listed on Friday (February 5), with a total of 365.2 million shares issued, raising a total of 48 billion Hong Kong dollars, of which 2.5% of the shares were publicly offered Attracted 1.423 million people to subscribe, frozen capital of 1.28 trillion yuan, and an over-purchase multiple of 1,203 times, showing that the IPO market is hot.

In fact, in the past year, driven by the return of Chinese concept stocks and new economic stocks, Hong Kong’s initial public offering (IPO) financing reached a 10-year high, accounting for about 45% of the world. The market predicts that within the next three years, it may There are 40 leading Chinese concept stocks listed in Hong Kong, which is expected to open a new chapter for Hong Kong, an international financial center.

Following Kuaishou, Baidu, Zhongtong Express, Ctrip, Bilibili ("B Station") and other Chinese emerging economy companies that have been listed in the United States are reportedly gearing up for their second listing in Hong Kong.

Why is Hong Kong becoming a fund-raising destination for China Concept Stocks?

This is certainly related to the "time" of the US stock market under the Sino-US trade war, the strengthening of the US stock market, the intensified US dollar trust crisis, and the low valuation of Chinese capital. It is also indispensable to the "geographical" factor that Hong Kong, as a market outside China, should actively participate in national strategies , And the reform of listing regulations promoted by the Hong Kong Stock Exchange (HKEx) in 2018 is a particularly critical "renhe".

China's concept stocks have migrated to Hong Kong on a large scale. Among them, there are many new economic concept stocks such as Kuaishou, whose market value often exceeds Hong Kong's traditional "blue chip stocks". This not only changes the composition of the HSI, but also impacts the old economic industries.

Then, as an "old" international financial center, how should Hong Kong seize the reform opportunity of this "refurbishment"?

Is it necessary to re-seeking to adapt to the international drastic changes, not only to be the "international Hong Kong", but also the "China's New York"?

Apart from the financial market, how can huge financing drive Hong Kong's real economy?

How should the SAR government do a good job in the "redistribution of wealth" so that everyone in Hong Kong can share the fruits of prosperity?

On Friday (5th), Kuaishou was officially listed on the Hong Kong Stock Exchange.

(Netease Finance)

The heated game between China and the United States last year indirectly contributed to the return of China Concept Stocks (also known as "China Depositary Receipts" or "China ADRs") listed on the US market, supporting the Hong Kong IPO market.

According to the figures of the Hong Kong Stock Exchange, as of the end of December 2020, there were a total of 154 companies' initial public offerings (IPOs) with a total of 397.5 billion yuan, an increase of 27% from the 314.2 billion yuan in 2019.

The increase in the amount of funds raised is nothing more than related to the return of Chinese concept stocks-a total of nine Chinese concept stocks returned last year, accounting for approximately 34% of the total funds raised.

In 2020, nine companies including JD.com and NetEase will be listed in Hong Kong for the second time. In this year, analysis and statistics indicate that there are about 34 companies listed in the United States, such as bilibili ("B Station"). ), Baidu, etc., intending to come to Hong Kong for a second listing, and 10 companies are in preparation; there are also many mainland companies coming to Hong Kong for IPO, such as JD Logistics, the mainland’s largest Q&A website Zhihu, and the mainland online car-hailing platform Didi Chuxing, etc. Some accounting firms predict that there will be about 120 to 130 IPOs this year, raising more than 400 billion Hong Kong dollars, of which more than 10 new shares are secondary listings, raising more than 100 billion yuan; there are also four to five new-economy companies. Huge fund-raising listing projects, with at least 10 billion yuan raised for each new share.

According to statistics, about 34 companies listed in the United States, such as Bilibili and Baidu, intend to come to Hong Kong for a second listing.

(Profile picture)

A miserable target under the Sino-US game

In the 1990s, many state-owned companies such as Shanghai Petrochemical and China Southern Airlines went public in the United States, which played an important role in seeking foreign investment and enhancing China's image in the international capital market.

The past ten years have been the peak period for Chinese companies to go public in the United States, and more than 180 Chinese companies have sounded the gong on the American Stock Exchange.

However, time has changed. As the Sino-US game heats up, China Concept Stocks bear the brunt and become the "target."

Since May last year, Chinese concept stocks listed in the US have returned to become the focus of the market.

On May 20 last year, the U.S. Senate passed the Holding Foreign Companies Accountable Act (Holding Foreign Companies Accountable Act).

The bill proposes that foreign companies need to prove to the PCAOB that they are not state-owned; in addition, if overseas companies listed in the US fail to pass the US audit requirements for three consecutive years, they will face forced delisting.

After passing the "Foreign Company Accountability Act", the China Securities Regulatory Commission responded that the bill requires foreign issuers to make additional disclosure requirements, including proving that they are not controlled by foreign governments, disclosing the names of Communist Party officials on the board of directors, and whether the Communist Party constitution is included in the company's articles of association. Etc., with obvious discriminatory elements. This politicized approach is not based on professional considerations of securities supervision.

Prior to this, Nasdaq submitted to the U.S. Securities and Exchange Commission (SEC) the text of the revised rules, which focused on tightening the listing standards for companies in some countries. For example, the minimum amount of funds raised by companies to be listed in the restricted market is required. 25 million U.S. dollars, or the minimum fund-raising amount reaches one-fourth of the company’s listed market value after the issuance; it also puts forward new specific requirements for specific company management.

Both the "Foreign Company Accountability Act" and the new listing rules have deterred foreign companies interested in listing in the United States, and have delayed or interrupted the listing process of some companies.

In the long run, the return of Chinese concept stocks to Hong Kong or mainland capital markets is an inevitable result.

Zhan Xintong, an assistant professor in the Department of Finance of the Chinese University of Hong Kong, analyzed that taking into account the influence of the political landscape, the secondary listing is also a performance of risk diversification.

(Provided by interviewee)

Zhan Xintong, an assistant professor in the Department of Finance of the Chinese University of Hong Kong, analyzed that taking into account the influence of the political landscape, the secondary listing is also a performance of risk diversification.

"Why has Hong Kong become a (secondary listing) option? It is to control political risks. Listing in overseas markets will inevitably be affected by the local environment. For example, shorting some Chinese companies will cause the stock price of Chinese concept stocks to fall." She believes, The United States has imposed some restrictions on Chinese concept stocks. Although they are not clear, they also contain negative reviews. If they are affected by negative sentiment, valuations are not good enough; Hong Kong’s policy impact, environment, or tension is relatively small, and the amount of financing can be Higher, the valuation will not be affected too much: "Don't put eggs in the same basket, this is very business logic."

At present, there are nearly 450 Chinese-funded ADRs listed in the United States. In the early days, large-scale state-owned enterprises were mainly red-chip secondary listings. In recent years, mainland companies have directly raised funds in the United States, mostly from new economic fields such as Internet technology, consumption, and medicine. .

In April last year, as soon as the financial fraud scandal of the mainland coffee brand Luckin Coffee broke out, the SEC issued a statement against Chinese stocks stating that PCAOB has limited ability to obtain the basic working documents required for auditing Chinese companies listed in the United States; SEC Chairman Jay Clayton also reminded that because of information disclosure issues, investors are reminded not to invest funds in the stocks of Chinese companies listed in the United States when adjusting positions in the near future.

The "Foreign Companies Accountability Act" has created a dilemma for Chinese concept companies. This move will undoubtedly lead to a conflict of laws and regulations. Based on the consideration of state secrets, information security and national sovereignty, the Mainland stipulates that unless approved by the regulatory authorities, audit documents and other files should be Stored in the territory.

Even if the country of the company under review is not limited to China, the number of Chinese concept stocks is enough to make China stand in the forefront.

As of July last year, PCAOB announced that a total of 250 foreign companies listed in the United States hindered its supervision, of which 227 were Chinese companies, accounting for more than 90%.

Affected by the Sino-US game, Chinese concept stocks have been delisted from the US stocks one after another. Many companies have returned to Hong Kong, driving the development of Hong Kong's financial industry and capital market.

(Data Picture/Photo by Yu Junliang)

The reform of the Hong Kong Stock Exchange catalyzed the return　

The delisting crisis and the attitude of distrust have become a catalyst for the return of China concept stocks. For the first listed China concept stocks, the secondary listing in Hong Kong is like buying insurance.

In addition to the push of the US government to pressure Chinese companies, the pull of the Hong Kong Stock Exchange's active reforms has also driven some Chinese concept stock companies back to listing.

The listing environment in Hong Kong is relatively friendly, which in a disguised form drives the overall development of Hong Kong's financial industry and capital market.

As early as five years ago, there was a wave of Chinese concept stocks in the stock market. At that time, many companies such as 360 Security Technology Co., Ltd. (Qihoo 360), Focus Media, and Giant Network were all privatized and delisted from US stocks. , And then return to the A-share listing.

At present, there are two main options for the return of Chinese concept stocks: one is privatization and delisting of U.S. stocks and re-listing on the A-share or H-share market; the second is to retain the U.S. stock listing, dual-listing on the A-share or H-share market or second Listed.

If Chinese concept stocks intend to leave the U.S. stock market and return from the market, they must go through the three stages of privatization and delisting, dissolution of the VIE (Variable Interest Entity) structure, backdoor or IPO relisting, which lasts for six months, and the cost of delisting is relatively high. ; Conversely, if you plan to come to Hong Kong for a second listing, the process is faster and the cost is lower.

In April 2018, the Hong Kong Stock Exchange implemented major reforms to allow biotech companies that have not yet made a profit and companies with a "same share but different rights" structure to be listed, and allow some companies with large and medium-sized Huawei businesses to be listed in Hong Kong for a second time. Meet the following requirements: (1) Innovative industry companies must have been listed on a qualified listing exchange (New York Stock Exchange, Nasdaq Stock Market or London Stock Exchange main market) and maintained for at least two fiscal years Good compliance records; (2) The market value exceeds HK$40 billion, or the market value exceeds HK$10 billion, and the income in the most recent audited fiscal year is at least HK$1 billion; (3) The issuer needs to prove that its main listing place is in laws, regulations, etc. It has a level of protection for major shareholders equivalent to that of Hong Kong.

The Hong Kong Stock Exchange clearly put forward the requirements for secondary listings and the reform of "same shares with different rights", providing "soil" for the return of Chinese concept stocks.

Xiaomi Group and Meituan-Dianping successively listed in Hong Kong stocks in 2018; Alibaba officially listed on the Hong Kong Stock Exchange on November 26, 2019, raising 88 billion yuan and becoming the second largest new stock in the world that year.

After the reform, the Hong Kong Stock Exchange has improved its financing efficiency and financing amount; in the past two years, the financing of listed companies in the new economy accounted for as high as 57%. Among the top ten listed companies, eight were new economy companies. There are only two.

After the reform of the Hong Kong Stock Exchange, Alibaba and other new economy companies have come to Hong Kong for a second listing.

(Photo by Ou Jiale)

Zhan Xintong believes that the transparency and tolerance of the Hong Kong Stock Exchange is also one of the reasons for the return of Chinese concept stocks: "(Hong Kong) has a professional standard and transparent system, and there are higher requirements for information disclosure. Investors are more advantageous; moreover, the Hong Kong Stock Exchange does not impose requirements on the size, scale and type of companies. These are very attractive to start-ups, and they can find funds in a short time."

At present, many Chinese concept stocks are listed using the VIE structure, that is, the core business of related companies is in the Mainland, but the listed entities are registered in other places. However, the current A-share market fails to cooperate in the legal system, and only the Science and Technology Innovation Board allows listed companies to own Dual equity structure, and foreign investors cannot invest through the Shanghai-Shenzhen-Hong Kong Stock Connect.

In contrast, Hong Kong has paved the way for the return of Chinese concept stocks for many years. ADR shares listed in the United States and Hong Kong can be converted to form an all-weather stock circulation system to promote trading. That is, if Chinese concept stocks listed in the United States are delisted, their US shares It can still be exchanged for shares listed in Hong Kong and become the first choice for return. This can increase Hong Kong’s competitiveness as a fund-raising market, and also help maintain its trading volume and investor enthusiasm, thereby changing the trading ecology of Hong Kong stocks.

Last year, the mainland technology and business media 36氪 compiled a list of 22 Chinese stocks that met the requirements for the secondary listing of the Hong Kong Stock Exchange as of May 31, 2020. They mainly covered the consumer, information technology, industrial and healthcare industries, and the market value There are 17 companies with a value of more than 40 billion yuan, some of which have already listed in Hong Kong or are in the preparatory stage.

The Hong Kong Stock Exchange had previously planned to relax the non-innovative industry's China concept stocks for consultation on the secondary listing in Hong Kong. It recommended that the minimum market capitalization requirement be changed to at least US$4 billion (approximately HK$31 billion) and the removal of "innovative industry" companies Under this amendment, it is preliminary estimated that 26 more companies will meet the requirements, allowing more companies to come to Hong Kong for secondary listing.

Cao Jie analyzed that Hong Kong is the world's most diversified investment zone. In addition to the world's top financial institutions, there are also Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect.

This is more difficult to achieve in the mainland market.

(Profile picture)

Associate Professor Cao Jie of the Department of Finance of the Chinese University of Hong Kong analyzed: "For companies that want to list in Hong Kong, Hong Kong is the world's most diversified investment zone. In addition to the top international financial institutions, there are also local and Asian institutional investors and Retail investors, as well as Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect (allowing mainland investors) to buy Hong Kong stocks. This is more difficult to achieve in the mainland market.” More importantly, as a free market, Hong Kong has no restrictions on the flow of funds. Moreover, after a company is listed, it can still continue to raise funds in the financial market through other tools, and the mainland still has capital controls.

The overwhelming advantage of the H-share market, coupled with the Hong Kong Stock Exchange’s listing rules reform, has made the listing procedure time-saving and convenient, thus attracting more companies willing to list in Hong Kong.

As for the mainland, the Beijing Municipal Financial Supervision and Administration Bureau announced at the end of July last year that it would sort out the prospective stocks going to the US and China. If they meet the requirements for the return, they will support their return to A-shares or the development of Hong Kong stocks. They will also cooperate with the China Securities Regulatory Commission and other regulatory authorities. Strengthen communication, introduce policies and pilot projects in the New Third Board market or other sectors, and guide China's concept stocks to return to China for development.

Zhan Xintong added that the return of Chinese concept stocks is not dominated by the central government. It is just that the Chinese concept stock companies see other financing directions, and the government will naturally give certain support. "Because most of the stocks that choose to list in the United States have industrial advantages, if they After seeing the risks in the U.S. market, they may choose to return to the mainland or Hong Kong market.” The successful entry of companies to the U.S. has proved the feasibility of their business model to a certain extent. The government will provide corresponding support in policy and provide more convenient investment channels. , It's not a bad idea.

Favored in Hong Kong to increase valuation

Companies can choose to list overseas, and they will never choke in order to avoid changes in listing and regulatory rules, or local political risks. Long-term development and commercial factors are also important considerations.

The underestimation of the market value has always been a pain point for Chinese concept stocks. Market bias, information asymmetry and uneven corporate good and bad, coupled with unique business models and lack of comparison objects, overseas investors have insufficient understanding of Chinese concept stocks, leading to the valuation of Chinese concept stocks It is difficult to be reasonably reflected in the market price, and most of the Chinese concept stock companies listed in the United States are undervalued.

For example, China Feihe, a dairy product seller and producer, was delisted in June 2013, at a price-earnings ratio of approximately 5.12%, and then listed in Hong Kong in November 2019, with the latest price-earnings ratio of approximately 48%.

China Feihe, which was listed in the United States, was delisted in June 2013 at a price-earnings ratio of about 5.12%. It was listed in Hong Kong in November 2019, and its latest price-earnings ratio was about 48%.

The picture shows Leng Youbin, CEO of China Feipeng.

(Profile picture)

Cao Jie explained that the price of a stock not only depends on the true value of the stock, but is also affected by many external factors.

The valuation of a company or its value in the stock market can be reflected in the stock price, but the price of the stock often does not correspond to the company’s fundamentals. It needs to be determined by the willingness, demand and supply of investors: "Assuming investors It is rational, can obtain sufficient information, and the price can be close to the value. However, there are many factors in reality. For example, in the North American market, some investors may be affected by emotions, thereby reducing their willingness to invest in China Concept Stocks."

In addition to inherent capital discrimination, frequent short-selling is also a problem.

Since Luckin Coffee was proven to be fraudulent, many Chinese company stocks that went public in the United States, such as iQiyi, Future Education Group and GSX, have been shorted. The subsequent negative news has plunged the entire Chinese concept stock sector into a crisis of trust. It also makes the valuation of Chinese concept stocks in the US capital market even more disadvantageous.

Cao Jie added that the business of Chinese concept stock companies is mainly in mainland China, but the investors are in North America. American investors may not be able to obtain information immediately.

Under the influence of the new crown pneumonia epidemic and the social atmosphere, the political relationship between China and the United States is tense, which has caused problems in the exchanges between the two sides. Investors may be reluctant to buy Chinese concept stocks or have concerns about investing in Chinese-related companies.

In November last year, Ant Group's giant IPO (initial public offering) came to a halt.

(Profile picture)

It is true that some of the returned Chinese concept stocks, in addition to raising funds, are also highly sought after by investors after their listing. For example, when Alibaba returned to Hong Kong, it issued 500 million new shares at 176 yuan per share. After its listing, it continued to rise, and before the turmoil of its listing, Ant Group, which broke out last year, Alibaba's stock price once reached 309 yuan.

In September 2016, the China Securities Regulatory Commission issued the "Certain Provisions on the Interconnection Mechanism of Mainland and Hong Kong Stock Market Transactions". Hong Kong and Mainland investors can invest in another stock market through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect respectively. Under the policy, mainland investors can invest in Hong Kong stocks and have a higher valuation premium in the long run, making it reasonable for Chinese concept stocks to seek secondary listing in Hong Kong.

The above was published in the 252th issue of "Hong Kong 01" Weekly (February 8, 2021) "Chinese concept stocks abandon the US and return to Hong Kong will become the Chinese version of Nasdaq."

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Highlights of the 252 issue of "Hong Kong 01" Weekly News:

[Cover report] Chinese concept stocks abandon the US and return to Hong Kong to become the Chinese version of Nasdaq

Hong Kong is very rich, but everyone is very poor. Dismantling the myth of public finances

Interview with Hong Kong University's Chief Vice President Wang Yujian's misunderstood "Rental Buying Standard Bearer"?

The second "Economic Summit Forum" successfully concluded political and business leaders brainstorming to seek development opportunities in Hong Kong

The fate of the same heart stent at different prices is very different

Thirty years later, marine plastic may be more plagued by the silent cry of sea turtles

[Technology.

In the future] Satellite launches are rising, it’s time to face up to space pollution

[Hong Kong Re-planning] Public transport policy aims to "fair" public transport, road tolling to relieve congestion

China Concept Stocks 01 Weekly Report in-depth report Kuaishou Hong Kong Economic IPO new shares listed