Hong Kong stock market ‘task force’ urges push to win Middle East IPOs

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A task force set up by Hong Kong’s government to boost stock market listings and trading activity has urged the territory to focus its efforts on companies and investors in the Middle East and south-east Asia, after outreach to the US and Europe was held back by China’s strict zero-Covid policies.

The recommendations, which have not previously been made public, are intended to help increase trading volumes in the Asian financial hub. New listings of Chinese companies in Hong Kong have run dry, while demand from foreign investors has waned in the face of a liquidity crisis in the mainland’s property sector and worsening tensions between Beijing and Washington.

Two members of the 13-person liquidity task force told the Financial Times that the group had recommended greater outreach to issuers and investors in south-east Asia and the Middle East in a confidential report delivered to the government last month.

Carlson Tong, chair of the task force, told the FT it had “recommended the promotion of listing in [Hong Kong] to overseas issuers more generally including the Middle East and south-east Asia”.

The task force was assembled by the Hong Kong government in late August. It comprises top government officials and industry leaders and has a mandate to make recommendations to improve financial market liquidity.

The call to focus on the two regions follows a year in which bourse operator Hong Kong Exchanges and Clearing has tried to raise its public profile by opening offices in New York and London. Chief executive Nicolas Aguzin struck a large gong — as is sounded in Hong Kong on the day of a new listing — to open the offices.

A member of the task force described HKEX as “a laggard” in setting up its offices in London and New York, as strict Covid-19 containment policies kept Hong Kong walled off from the wider financial world.

“US and European investors are very important, and we shouldn’t forget about them . . . but we need a multipronged approach,” the person said.

The task force member said capital markets business from the mainland was still Hong Kong’s “bread and butter” but added: “You need that diversified investor base and diversified issuers as well to fall back on. We should at least start to think from these perspectives, rather than just relying on China.”

HKEX has struggled to make up a shortfall in trading activity caused mainly by international investment funds’ diminished appetite for Chinese companies listed in Hong Kong. Such stocks have fallen about 11 per cent this year.

About three-quarters of the foreign inflows to China’s onshore stock market via Hong Kong’s Stock Connect programme in the first seven months of the year have now left, the FT reported last week.

Line chart of Equity benchmark performance year to date (indexed to 100) showing Poor performance weighs on investor appetite for China stocks

HKEX’s third-quarter results showed that cash trading revenues were down 10 per cent from a year ago while stock listing fees fell 20 per cent.

A total of just $4.6bn has been raised this year from initial public offerings in Hong Kong, compared with an annual average of about $37bn over the previous five years, according to data from Dealogic.

Shares in HKEX are down more than 13 per cent this year.

A spokesperson for the exchange said it was “committed to driving the vibrancy and attractiveness” of Hong Kong’s market and that the task force’s recommendations “endorsed many of the initiatives already in progress as part of HKEX’s strategy”.

“We are actively working on rolling out a range of market initiatives . . . as well as expanding and deepening our partnerships with a range of other exchanges and stakeholders,” the spokesperson added.

Hong Kong’s government did not immediately respond to an FT request for a full copy of the task force’s report.

“For Middle Eastern and south-east Asian countries, [Hong Kong’s market] is a very natural fit,” another member of the task force said, pointing to Hong Kong’s role in promoting Chinese President Xi Jinping’s Belt and Road Initiative, which seeks to strengthen China’s trade and financial ties to developing economies.

Hong Kong has made some progress in bolstering its offerings of Middle Eastern investment products this year, with an exchange-traded fund that tracks Saudi Arabian equities making its trading debut on Wednesday.

HKEX has also extended “recognised stock exchange” status to bourses in Saudi Arabia and Indonesia this year, opening the door to companies already listed in those countries selling shares in Hong Kong.

Tong said the task force had “worked with constituents from across Hong Kong’s markets” and that its short-term recommendations — including a cut to Hong Kong’s stamp duty implemented by the city’s chief executive on October 25 — were being “rolled out full-steam ahead”.

He added: “One of the major achievements of the task force was [it] succeeded in ensuring that all the stakeholders in Hong Kong were aligned on how to continue to promote the city as an international financial centre.”


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