Stocks and IPOs continue to reach high

Fund managers, certified accountants and finance academics who share their views with China Daily are all positive on how the financial integration of Hong Kong and the mainland is escalating the special administrative region's status as one of Asia's dominant international finance centers.

Since Hong Kong returned to China in 1997, its stock market has experienced exponential growth in market capitalization and initial public offering amounts raised, according to Hong Kong Exchanges and Clearing Ltd figures.

For the general stock market, the market capitalization at the end of 1997 totaled HK$3.2 trillion, with 658 companies listed on the local stock exchange. Average daily turnover was HK$15.4 billion.

At the end of March 2012, the market capitalization had swelled more than five-fold to HK$19.7 trillion, with 1,337 listed companies accounting for an average daily turnover of HK$63.2 billion.

Since Tsingtao Brewery Group listed in 1993, the first H-share listing on the Hong Kong exchange, H-share company listings became a driving force for local share market growth, as mainland enterprises increased their participation in the benchmark Hang Seng Index.

At the end of 1997, only 101 mainland companies were listed on the local stock market, which contributed HK$522.4 billion to the market capitalization, representing 16 percent of the total stock market value.

In contrast, by the end of 2011, 640 mainland companies were listed on the local stock exchange, representing HK$9.7 trillion market value to the whole stock market, and accounting for 55 percent of the total stock market capitalization.

"The Hong Kong share market's capitalization benefits a lot from its financial integration with the mainland when more mainland companies utilize the local share market as the premier listing venue," says the Capital Focus asset management director Simon Luk.

"As the Hong Kong financial system is open, more mainland companies share listing has elicited more capital inflows, greatly boosting the local bourse's status."

Simon Lee, a lecturer at the Chinese University of Hong Kong Business School, agrees that the financial integration between the region and the mainland has helped the market value to soar.

"Hong Kong's finance professionals have the most expertise and knowledge of the mainland market compared with other global exchanges, and this is why overseas capital is attracted and flows into our market," Lee says.

Besides the gain in market capitalization and listed company numbers, the local stock exchange also took advantage of its geographical proximity to the mainland to become a fundraising magnet, attracting diversified international listings, especially international resources firms and luxury brands, which are eager to expand their strategic business foothold in China.

Patrick Yeung, of the accounting group CPA Australia Greater China, says: "A robust secondary share-trading market in the city due to the free flow of information will foster the growth of a vibrant local IPO market, when companies are eager to list their shares in the local bourse, with the hope that their company shares can be actively traded."

Yeung is bullish about the local stock exchange's fundraising capability, as the IPO market has reached a critical mass, enabling it to attract even more diversified corporate sector share issuers from different countries for listing in Hong Kong.

Issuing exchange-traded funds will be another facet of Hong Kong financial integration with the mainland, when ETF trading allows local and mainland stock markets to reciprocally track the share price indices' movements.

In Hong Kong at the end of May, there were 38 listed ETFs on the HKEx that track mainland share price movements, representing 40 percent of the total locally listed ETFs that track other indices' price movements.

It is also widely expected that the central government will soon announce plans to permit ETFs listed on the mainland share market to track the local Hang Seng Index price movement.

oswald@chinadailyhk.com