Hong Kong Industry Profiles

Overview

• Hong Kong has one of the world's most active and liquid securities markets. There is neither control over capital movements nor capital gains or dividend income tax.

• Hong Kong’s stock market is the third largest in Asia and seventh largest in the world. As of end-2011, there were 1,496 companies listed on the Hong Kong Exchanges (HKEx) with a total market capitalisation of USD 2,258 billion.

• Hong Kong ranked the world’s largest initial public offering (IPO) market in 2011, topping the world’s IPO league for the third consecutive year, with 89 IPO raising US$33.3 billion.

• Hong Kong had 77 authorised exchange-traded funds (ETF) as of end-2011, with the average daily ETF turnover reaching US$284 million in 2011.

• Under China’s 12th Five-year Programme, it is stated that the mainland will support Hong Kong as an offshore Renminbi centre and fund management centre. Hong Kong’s financial services offer will be reinforced by an expected rise in dual-listing of stocks and ETF.

• In April 2011, Hui Xian Real Estate Investment Trust (REIT) was listed as the first Renminbi (RMB)-denominated fund product on the HKEx and the first RMB IPO outside the Chinese mainland.

• In February 2012, Hang Seng RMB Gold ETF, the first RMB ETF in Hong Kong, was listed on the HKEx.

Industry Data

Source: Hong Kong Exchanges and Clearing

Source: Quarterly Report of Employment and Vacancies Statistics

Service Providers

Trading services of the securities industry are provided by investment banks, commercial banks, finance companies and securities brokerage companies.

Investment banks are the principal underwriters for initial public offerings (IPO). Hong Kong's highly liberal and liquid securities market has attracted many international investment banks and securities house to build their presence here, eyeing the IPO and securities businesses.

In the secondary market, local retail customers are served mainly by local brokers and banks, whereas institutional buyers are principally served by the international brokers and investment banks.

Being the most liquid overseas market for mainland enterprises, Hong Kong is an important centre for raising capital for companies on the Chinese mainland. The majority of mainland companies seeking overseas listings have their listing in Hong Kong. As of end-2011, 640 mainland companies were listed on either the Main Board or GEM in Hong Kong, with a market capitalisation of US$1,246 billion, or 55% of the total.

China's World Trade Organisation (WTO) accession

Foreign securities firms can establish joint ventures (with foreign ownership less than one-third) to engage in underwriting A-shares, and in underwriting and trading B- shares, government and corporate debts.

Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)

Aside from the Chinese mainland's WTO liberalisation measures, Hong Kong's securities sector and professionals further benefit from the CEPA agreements signed with the mainland.

Generally, CEPA allows easier access for Hong Kong's securities and futures companies and professionals to the mainland market. In addition, CEPA also encourages, through financial services cooperation between the mainland and Hong Kong, more mainland enterprises to get a listing in Hong Kong.

Under CEPA, Hong Kong professionals (Hong Kong permanent residents who possess a licence issued by the Securities and Futures Commission of Hong Kong) applying for securities and futures industry qualifications of the mainland are only required to undertake training and pass examination related to mainland laws and regulations. Examination on professional knowledge is not required.

Under Supplement VII to CEPA, it is agreed that ETF constituted by Hong Kong listed stocks will be launched on the mainland at an appropriate time. This is a clear sign from the mainland that the launching of ETF has already moved beyond the stage of feasibility study to the stage of policy formulation.

From April 2012, any mainland-incorporated banking institution established by a Hong Kong bank can engage in the sale and distribution of mutual funds as per CEPA Supplement VIII. It also stipulates that Hong Kong is allowed to invest in the mainland securities market by means of the RMB Qualified Foreign Institutional Investor scheme (RQFII).

These CEPA provisions help contribute to a greater use of Hong Kong as a financial platform for mainland securities and futures companies, with the expectations of generating more cross-border business opportunities for Hong Kong and the mainland.

Qualified Domestic Institutional Investor (QDII)

In April 2006, the People's Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) jointly issued rules to allow qualified commercial banks to raise RMB funds from individuals and institutions to invest in overseas financial instruments. Hong Kong was the first market which mainland residents were allowed to invest via qualified mainland financial institutions. The first QDII stock-oriented fund was launched in September 2007. As of end-February 2012, SAFE had granted QDII quota of US$9.5 billion to 26 banks, US$44.4 billion to 39 fund management companies and securities firms, US$19.6 billion to 26 insurance companies, and US$1.8 billion to 5 trustees, totalling US$75.2 billion.

Industry Development

As of end-2011, Hong Kong’s stock market capitalisation reached USD 2,258 billion, ranked 3rd in Asia and 7th in the world.

In 2011, Hong Kong ranked the world’s largest IPO market, topping the world IPO league for the third consecutive year with 89 IPO raising US$33.3 billion. Large IPO in term of funds raised in 2011 included Glencore International plc, Prada S.p.A., Shanghai Pharmaceuticals Holding, Chow Tai Fook Jewellery Group and Citic Securities Co.

Listings of foreign enterprises has become a growth engine reinforcing Hong Kong’s leading position in IPO fundraising. The number of foreign companies listed in Hong Kong doubled from 11 in 2009 to 24 in 2011. Internationalising the listing portfolio is the major strategy played by the HKEx. In 2011, there were four newly added acceptable overseas jurisdictions for the listings of overseas companies in HKEx, including Alberta (in Canada), France, Guernsey and Delaware.

In October 2011, HKEx announced a joint initiative to form an alliance with five other exchanges from the BRICS emerging market bloc (Brazil, Russia, India and South Africa in addition to China), namely BM&FBOVESPA, Moscow Interbank Currency Exchange (now being Open Joint Stock Company MICEX-RTS after its merger with RTS Group), the National Stock Exchange of India (NSE), BSE Ltd, and the Johannesburg Stock Exchange (JSE). The first initiative was the cross-listing of their benchmark equity index derivatives.

The diversification of investment products enhances the attractiveness of Hong Kong's platform and among new products offered is the increased range of ETF. On the other hand, ETF provide Hong Kong investors with a wide variety of geographical exposure, including Hong Kong, the Chinese mainland, Japan, Korea, Russia, India and emerging markets. They are in the form of different asset classes, namely equities, Asian bonds, gold, and commodities futures index.

As of end-2011, Hong Kong had 77 authorised ETF, with the average daily ETF turnover reaching US$284 million in 2011.

Under China’s 12th Five-year Programme, it is stated that the mainland will support Hong Kong as an offshore RMB centre and fund management centre. Hong Kong’s financial services offer will be reinforced by an expected rise in dual-listing of stocks and ETF. Riding on the expanded RMB trade settlement scheme, Hong Kong has succeeded in expanding its offer of RMB-denominated financial products and services, including trade finance, RMB stocks, RMB bonds and other related products and services.

In his visit to Hong Kong in August 2011, Vice Premier Li Keqiang outlined the mainland government’s support to Hong Kong in introducing ETF constituted with Hong Kong stocks on the Chinese mainland, developing channels to facilitate the cycling of RMB between Hong Kong and the mainland, and the RMB Qualified Foreign Institutional Investor (RQFII) scheme.

In April 2011, Hui Xian Real Estate Investment Trust (REIT) was listed as the first RMB-denominated fund product on the HKEx and the first RMB IPO outside the Chinese mainland, marking a milestone of the development of the offshore RMB in Hong Kong.

HKEx has introduced two models to facilitate the listing and trading of RMB-denominated securities, namely Single Tranche Single Counter (STSC) and Dual Tranche Dual Counter (DTDC). STSC is the traditional model where the IPO of the stock will result in shares being traded in a single RMB counter in the secondary market. On the other hand, DTDC comprises separate but simultaneous offer and subsequent listing of shares in RMB and HKD by the same issuer, while shares of the two counters are of the same class and freely convertible. In September 2011, HKEx released guidelines on RMB-denominated follow-on offerings to enable listed companies to raise RMB funds by share placements and rights issues/open offers.

In February 2012, Hang Seng RMB Gold ETF, the first RMB ETF in Hong Kong, was listed on the HKEx.