In early March this year, five Chinese concept stocks were included in the "pre-delisting list" by the US Securities and Exchange Commission (SEC).
In the following three months, the SEC has so far released eight batches of "pre-delisting lists" involving 149 companies.
Wen Fan, Deputy Head of Fixed Income Investment Department of ICBC Asset Management (Global), and Liu Ligang, Head of Asia Pacific Economic Analysis at Citi Private Bank, both estimated in an interview with Hong Kong 01 that all Chinese concept stocks listed in the US will enter the list.
In the face of the delisting turmoil, the "come to Hong Kong of Chinese concept stocks" is undoubtedly one of the challenges of Chief Executive-designate Li Jiachao's tenure. Among them, it is necessary to consider the lack of liquidity in the Hong Kong market, the lack of confidence in international investors in Chinese concept stocks, and the possibility that the United States may impose trade on Hong Kong. , financial sanctions and other three major issues.
How does Hong Kong need to be deployed?
How should we take advantage of the unique advantages of being at the intersection of China and the United States, look for a turning point in the crisis, and find a new point of strength as China's "international financial center"?
Insufficient liquidity
prepares for fear of infrastructure
Liquidity is the market's biggest worry, but also the least worrying issue.
At present, many leading Chinese concept stocks have been listed in Hong Kong to diversify listing risks.
According to the statistics of the reporter of "Hong Kong 01", there are 149 Chinese companies on the SEC's delisting list, with a market value of about 9 trillion Hong Kong dollars.
Among them, 30 companies have been listed in Hong Kong, with a market value of 7.59 trillion yuan, accounting for 83.80% of the total market value of listed companies (see Figure 1).
CICC's research report "Current Situation, Prospects and Ways of China Concept Stocks" screened out 42 companies that may meet the conditions for secondary listing and return to Hong Kong stocks in the next three to five years, including 20 companies with the same share and the same rights, with a total market value US$33.1 billion (approximately HK$259.8 billion); 9 companies with WVRs with a combined market value of US$81.4 billion (approximately HK$638.9 billion); 13 companies that meet the secondary listing rules in Hong Kong in the next three to five years, totaling Market value of US$46.1 billion (approximately HK$361.5 billion).
The article estimates that the return of Chinese concept stocks in the next three years may bring a total of 86.5 billion Hong Kong dollars in new fundraising scale, which is evenly amortized to 3 years, that is, the average annual fundraising amount is 29 billion Hong Kong dollars, which is equivalent to the annual IPO financing scale of Hong Kong stocks in 2021. 9%.
The article explained: "The pure increment is not high. If some secondary listings or dual main listings are considered to be listed by way of introduction, that is, no new shares are issued, the actual scale of new fundraising will be lower."
In the face of huge opportunities, Xu Zhengyu, Secretary for Financial Services and the Treasury, said in April in response to a question from a member of parliament that the mechanism for the return of Chinese stocks to Hong Kong for listing is currently operating smoothly.
In May, Xu Zhengyu responded to the question again, saying that "we are ready" and believe that the current financial market system infrastructure can relieve the pressure on capital liquidity caused by future IPO activities.
However, it is not difficult to see from Xu Zhengyu's response that the SAR government only considers "financial factors" such as liquidity and market infrastructure when responding to the turmoil in Chinese stocks, while ignoring geopolitical risks and investor confidence.
The Hong Kong Stock Exchange fine-tuned the listing rules at the beginning of this year, lowering the listing gate for Chinese stocks that may be delisted (file picture)
Singapore's strong competition,
Hong Kong's passive confrontation
Geopolitical risks will inevitably affect the operation of Hong Kong's capital market, and Transcript Fund is a typical example.
At the end of 2020, State Street Global, the then manager of Tracking Fund, was affected by the U.S. government’s ban and suspended investment in the sanctioned state-owned enterprise constituent stocks in the Hang Seng Index when managing Tracking Fund, making it impossible for Tracking Fund to closely track the Hang Seng Index.
The incident attracted the attention of local regulators and criticism from investors. State Street quickly resumed normal investment two days later, but the aftermath was not over, and voices from time to time demanded the SAR government to defend financial sovereignty from political harm.
In April this year, Transcript Fund changed its manager to Hang Seng Company.
Potential geopolitical factors have given another latecomer in the region, Singapore, an opportunity to "besiege".
Last month, Weilai Automobile was listed on the Singapore Exchange in the form of introduction, which shows that Sin Chew intends to take a share of the turmoil in the Chinese stock market.
Liu Ligang, head of Asia-Pacific economic analysis at Citi Private Bank, pointed out that SGX and HKEX each have their own advantages: SGX has less geopolitical risk, and has a wider range of products and markets. “Singapore has a stock market, but it is not the most important thing. Some, there are also stock market-related derivatives, foreign exchange, commodities and other transactions." In contrast, the Hong Kong trading market is dominated by the stock market, with a larger scale of investment and financing. "Many Chinese companies are listed on the SGX, and their stock prices have It won’t fluctuate too much. Companies listing overseas always pursue high valuations and raise a large amount of funds. In this regard, Hong Kong’s advantages are far superior to Singapore’s.”
Having said that, judging from the enthusiasm of the two exchanges, Singapore is obviously more active, which contrasts with Hong Kong's "repayment of the old."
Pol de Win, head of global sales and development at SGX, said in an earlier interview with Bloomberg that SGX is currently stepping up its engagement with Chinese companies seeking to list outside the U.S. or Hong Kong as well as increasing their visibility in Southeast Asia. Negotiations have reached more than 100 companies, hoping to attract companies with a valuation of 5 to 1 billion US dollars (about 3.9 to 7.8 billion Hong Kong dollars) to list in the local first or second.
Bao Desheng estimates that within five years, there may be 30 to 40 companies on the SGX each year for initial public offerings (IPOs) or secondary listings.
The Hong Kong Stock Exchange responded by fine-tuning the listing rules at the beginning of this year: relaxing the secondary listing requirements, allowing companies that do not have a WVR structure and whose business is concentrated in Greater China to come to Hong Kong for secondary listings, and delete the "innovative" Industry company” restrictions; adjust the minimum market value threshold, companies only need to be listed for five years and have a market value of 3 billion yuan, or two years of listing and have a market value of 10 billion yuan; optimize the “dual primary listing” channel, and meet the conditions to have existing WVR and can be listed. Exempted Greater China issuers and non-Greater China issuers that have a variable interest entity (VIE) structure and come to Hong Kong for secondary listing can also retain their existing structures and choose to conduct dual primary listings in Hong Kong.
Singapore's sovereign fund Temasek Holdings has invested in NIO, paving the way for its Laixing listing.
The picture shows the related exhibitions involved in the Singapore Exchange during the listing of NIO.
(Source: Singapore Exchange Facebook)
However, if a WVR-structured company wants to list in Hong Kong for the second time, it still needs to prove that it is an "innovative industry".
Wen Fan, Deputy Director of the Fixed Income Investment Department of ICBC Asset Management (Global), believes that this threshold limits companies in the non-innovative category: "The problem of different rights in the same share involves the control of the company, which the market economy can solve by itself.. ...as long as investors understand the risks of such equity structures, they can choose whether to invest or not.”
The active and passive nature of Star Harbor is not only reflected in the financial industry, but also in all aspects of economic development.
Hong Kong has long suffered from the deformed industrial structure of "financial dominance", the world's highest real estate prices and the resulting disparity between the rich and the poor.
With the return of Chinese concept stocks with a market value of trillions, the financial industry continues to make a lot of money, and the above problems will only become more difficult to solve.
On the other hand, Singapore, while focusing on developing the financial industry, has not forgotten to use finance to "feed back" the development of the real economy.
For example, the reason why SGX can attract NIO is inseparable from the help of the investor behind NIO-Singapore sovereign fund Temasek Holdings.
Temasek was established as early as the 1970s to invest in new economic industries in Singapore and overseas. While opening up the warehouse, it also promoted the industrial transformation of Singapore.
Li Bin, founder, chairman and chief executive officer of NIO, said publicly when talking about the listing of his company in Singapore, that he would take advantage of Singapore's advantages as an international economic and technological center to carry out in-depth cooperation with local scientific research institutions in Singapore to build artificial intelligence in Singapore. and the Autonomous Driving R&D Center.
In terms of the quantity and quality of new economy companies in the capital market, Hong Kong can be said to be "too much", but why did Chinese companies not express their willingness to cooperate and establish R&D centers in Hong Kong when they returned to the stock market?
Should the Hong Kong government consider conducting more comprehensive and multi-level cooperation with returning Chinese companies?
Thinking further, if the Hong Kong government can use the financial benefits brought by the "return of Chinese stocks" to reform the industrial structure and improve the gap between the rich and the poor, it can enhance its long-term competitiveness.
Alibaba and Amazon were once worth the same, and now the former is one-sixth of the latter.
The picture shows Jack Ma, founder of Alibaba Group, celebrating the listing of Alibaba's stock on the New York Stock Exchange.
(Getty)
Helping National Financial Reforms
to Increase Investor Confidence
In terms of investor confidence, overseas investors' confidence in Chinese companies has fallen to freezing point.
According to the mainland media "Investment Circle PEdaily", many unicorn companies in the mainland planning to sprint for IPOs on the Hong Kong Stock Exchange have all interrupted their listings because they could not find cornerstone investors.
Cornerstone investors are companies that promise to hold a certain number of shares at the subscription price and lock them for at least six months when they submit their listing applications on the Hong Kong Stock Exchange. Cooperative companies, private equity institutions, wealthy groups, etc.” The report pointed out that due to the serious upside-down in the valuation of the primary and secondary markets, the new shares of the Hong Kong Stock Exchange broke frequently this year.
Confidence issues not only occur in the primary market, but also in the secondary market.
CICC disclosed data in relevant research reports: overseas active funds under the EPFR caliber outflowed A shares, Hong Kong stocks and China Concepts significantly from the end of February to mid-March, with a total scale of 4.57 billion US dollars; based on its nearly 6,000 foreign institutional investors A summary of the quarterly information on the holdings of the top 100 overseas Chinese stocks found that the shareholding ratio of foreign institutions has dropped from about 21.2% at the end of 2021 to 19.8% in April.
"It's a fact that overseas investors' confidence in Chinese companies is relatively low," said Liu Ligang.
The unpredictable regulation of the mainland government in the past is one of the main reasons why overseas investors have low confidence in Chinese stocks.
Take Alibaba and Amazon, the world’s two largest platform economy companies, as examples. In 2017, their valuations were roughly the same. “Alibaba even surpassed Amazon at one point,” but now Alibaba’s valuation is only about one-sixth of the latter.
"During the whole process, has Ali's real business changed a lot? No, Chinese people still buy things on Taobao." Liu Ligang pointed out that China's top regulators have been aware of the issue of investor confidence and have repeatedly released clear regulations. signal of.
For example, after the introduction of the list of Chinese concept stocks under strict supervision in the United States, Vice Premier Liu He of the State Council immediately sent a "reassuring pill" at the special meeting of the Financial Stability and Development Committee of the State Council, saying that the governance of the "platform economy" should be based on marketization, rule of law, and internationalization. policy to improve the established program.
However, Hong Kong can play a more active role in enhancing the level of mainland financial supervision,
such as forming a normalized cooperation and communication mechanism with mainland securities regulators and participating in the reform and opening up of the country's financial market.
Xiao Geng, chairman of the Hong Kong Institute of International Finance, pointed out in an exclusive interview with "Hong Kong 01" earlier that the Hong Kong regulatory system is extremely competitive and friendly, and it is the core asset of the country's soft power.
Therefore, the Hong Kong government and relevant agencies can actively communicate with mainland regulators and provide regulatory advice to reduce misunderstandings and differences between Chinese and Western regulators.
Liu Ligang also pointed out that the Hong Kong Securities Regulatory Commission and the China Securities Regulatory Commission had close ties in the past. For example, the two chairmen of the Hong Kong Securities Regulatory Commission were both members of the China Securities Regulatory Commission Advisory Committee. Sent a very positive, positive signal."
Liu Ligang believes that if the China Securities Regulatory Commission and the Hong Kong Securities Regulatory Commission can strengthen ties, it will send a positive signal to the market.
The picture shows the Beijing headquarters of the China Securities Regulatory Commission.
(Reuters)
In addition, Hong Kong can serve as a test pool for the country's regulatory reforms, demonstrating to overseas investors China's determination and confidence in opening up its financial markets and mitigating geopolitical risks.
Liu Ligang specifically suggested that the country's medium and long-term funds, such as pensions and foreign exchange reserves, can be considered for allocation in the Hong Kong market and investment in Chinese concept stocks.
Liu Ligang analyzed that from the perspective of the country, participation in corporate governance in the form of public capital participation can supervise the implementation of corporate regulations, data protection and ESG (environmental, social and governance).
This kind of supervision is acceptable, and many technology giants in the United States have public pension participation. For example, the California Teachers Pension (Calstrs) holds shares in Apple, “institutional investors represent the public interest".
"If the state wants to participate in the governance of private enterprises, it is much better to use market means than political means. Political means have a great impact on China's reputation - causing overseas institutional investors to misunderstand that China is a politically driven regulation. way.” Liu Ligang said, “If there are many institutional investors in a capital market, it will actually function as a regulator.”
"If our policies can keep pace with the times and show an open attitude, then the accusations from the U.S. government will slow down." Liu Ligang explained, "A series of accusations made by the U.S. against China have a core that believes that there is a relationship between China and the U.S. It is an unequal opening.” For example, the US market is almost “fully open” to China, but the Chinese market has many restrictions on foreign investment.
He continued that if China can increase its degree of openness, even if U.S. investors are still skeptical considering political factors, China's attractiveness to funds from major economies such as Europe and Japan will also increase.