Traders monitor transactions at the Hong Kong stock exchange. Prospects of strong trading and new-listing activities in the local bourse this year are driving up investors' enthusiasm for shares of HKEx. Bloomberg News

Prospects for strong trading and new listings are stoking interest

HONG KONG: Shares of Hong Kong Exchanges and Clearing Ltd (HKEx) continued to outperform the broad market yesterday and reached a 5-month high, as brighter prospects reignited investors' enthusiasm for shares of the local bourse operator.

The stock climbed another HK$3.50, or 2.381 percent, to end the day at a five-month high of HK$150.0, bucking the weaker broad market, which retreated 147.22 points, or 0.66 percent, to 22,269.45 as measured by the benchmark Hang Seng index.

On Wednesday, the stock surged by a stunning 4.8 percent, also outperforming a 0.6 percent rise in the benchmark index.

Prospects of strong trading and new-listing activities in the local bourse this year are driving up investors' enthusiasm for shares of HKEx, market watchers said.

With operational expenditure basically remaining stable, higher daily turnover in the market and stronger initial public offering (IPO) activity will mean stronger profit for HKEx, whose revenue comes mainly from various fees charged on stock transactions and IPOs.

"First of all, you have the expectation of more capital inflows into the local market from the mainland via the so-called 'through train'," said Simon Lam, research director at Christfund Securities Ltd, referring to a potential channel that will allow mainland investors to trade Hong Kong stocks directly.

The expectations arise after the mainland market regulator, the China Securities Regulatory Commission, issued on Tuesday guidelines for securities firms in Hong Kong and the mainland to set up joint-venture securities consultation firms in Guangdong province.

Hong Kong parties will be allowed to hold a maximum of 33 percent stakes in the joint ventures, the CSRC said.

The move is viewed by some investors as part of the efforts by regulators to orient mainland investors to the Hong Kong market so that they won't suffer big losses when allowed to invest in Hong Kong one day, analysts say.

In late 2007, expectations for a "through-train" for capital flows from the mainland to Hong Kong caused a buying frenzy in the local market, sending share prices to record highs, with the benchmark index climbing to around 32,000 points.

The "through-train" stalled as the mainland authorities worried that mainland investors might get their fingers burned if they were allowed to come in when Hong Kong stock prices were at record highs then. Compounding this loss of momentum was the global economic downturn in late 2008 and 2009, which caused further delay.

While many market participants do not really expect the "through-train" to come any time soon, they do believe that many cash-rich mainland investors will find their way to bring their cash into the Hong Kong market when they become confident enough about it, particularly after getting some guidance from the joint-venture securities consultation firms.

"We don't need to worry about how they will bring in the money. They will always find a way if they want to," Christfund Securities Ltd's Lam told China Daily, when asked about how mainland investors could move their money while the "through-train" has yet to started.

Expectations for stronger IPO activity this year are also supporting the share price of the HKEx, analysts say.

"The IPO market is expected to be stronger this year compared with last year," said Matthew Kwok, deputy research head at Hai Tong (HK) Financial Holdings Ltd.

Firms are expected to raise as much as HK$400 billion IPO money in the Hong Kong market this year as capital continues to flow into the city and while companies are scrambling to take advantage of the current boom in the local market, said PricewaterhouseCoopers earlier.

About 60 firms tapped the local market for around HK$300 billion in 2009, which was 23 percent more than the HK$243.7 billion raised in IPOs in 2008, the consultant firm said.

As a result of expectations for the "through-train", trading in the market has been strong in the past few sessions, with total market turnover surging to over HK$80 billion on Tuesday and over HK$90 billion on Wednesday before slipping to HK$79 billion yesterday, compared with around HK$40-50 billion before the holidays.

The strong buying was also attributed to the so-called "January effect", said Hai Tong (HK) Financial's Kwok, referring to the strong buying by fund managers after returning from their Christmas vacations.

Whether the HKEx's share price can be maintained at the current price level will largely depend on whether the daily market turnover can be sustained at the relatively high current level, Kwok said, whose view was shared by Linus Yip, a strategist at First Shanghai Securities Ltd.

(HK Edition 01/08/2010 page3)