Overview
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The Hong Kong stock market is the third largest in Asia and seventh largest in the world. As of June 2008, there were 1,254 companies listed on the Hong Kong Stock Exchange with a total market capitalisation of US$2,096 billion. Its efficiency and risk management systems are among the best in the world.
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The IPO fund raising for 2007 amounted to US$37 billion. In IPO terms, Hong Kong ranked fourth in the world after London, New York and Shanghai.
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Hong Kong is the largest ETF (Exchange Traded Fund) market in Asia excluding Japan. Although the Asian ETF market is still relatively small compared to the American and European markets, it is gaining popularity and growing.
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Hong Kong has one of the world's most active and liquid securities markets. There is neither control over capital movements nor capital gains or dividend income tax.
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Being the most liquid overseas market for mainland enterprises, Hong Kong's capital market plays a key role in funding China's state-owned enterprises reform and private enterprises' expansion, as well as its massive infrastructure development program.
Industry Data
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Equity Market
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June 2008
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Main Board
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Number of Listed Companies
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1,065
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Total Market Capitalisation (US$ billion)
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2,082
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Growth Enterprise Market
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-
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Number of Listed Companies
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189
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Total Market Capitalisation (US$ billion)
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14
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Source: Hong Kong Exchanges and Clearing
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Stock, Commodity and Bullion Brokers, Exchanges and Services
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December 2007
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Number of Establishments
Employment
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830
14,320
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Source: Number of establishments, persons engaged and vacancies, Census & Statistics Department
Hong Kong has been 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 in Hong Kong. A large and well-diversified investor base participates in the Hong Kong stock market and institutional investors account for about 60% of total trading, while overseas investors account for about 40% of the total trading. The wide spectrum of investors and the immense liquidity and breath of the stock market attract international firms to introduce various new financial products in Hong Kong, which are generally well-received by investors.
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 (IPOs) in the primary market. Hong Kong's highly liberal and liquid securities market has attracted many international investment banks and securities house to build their presence here.
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.
Exports
Being the most liquid overseas market for mainland enterprises, Hong Kong is an important centre for raising capital for the Chinese mainland. The majority of overseas listed mainland companies have their listing in Hong Kong. As of June 2008, 449 mainland companies were listed in Hong Kong (including H-share, red-chip and private enterprises) with total market capitalisation of more than US$1,190 billion or 57% of Hong Kong's total market capitalisation. For the past decade, mainland companies have raised a total capital of about US$180 billion in Hong Kong.
China's World Trade Organisation (WTO) accession
Foreign securities firms can establish joint ventures (with foreign ownership less than 1/3) to engage (without Chinese intermediary) in underwriting A-shares, and in underwriting and trading B- and H-shares, as well as government and corporate debts.
Closer Economic Partnership Arrangement between Hong Kong and the Mainland (CEPA)
In addition to the Chinese mainland's WTO liberalisation, Hong Kong's securities sector and professionals further benefit from the CEPA agreement 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 Supplement II to CEPA, the Chinese mainland allows qualified mainland securities companies belonging to the pilot innovation type to set up subsidiaries in Hong Kong in accordance with the relevant requirements. Further, qualified mainland futures companies are allowed to operate future business in Hong Kong, including the setting up of subsidiaries.
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 and the Hong Kong stock market has been one of the preferred investment markets for QDII funds.
Industry Development and Market Outlook
Hong Kong raised more than US$37 billion through IPO activities in 2007 and ranked fourth in the world after London, New York and Shanghai. Hong Kong continues to play a significant role in IPO fund raising activities. In 2007, the world's largest IPO by the Industrial and Commercial Bank of China raised about US$16 billion in Hong Kong, while the listing of another Chinese state-owned bank, the Bank of China also raised about US$11 billion in Hong Kong.
The diversification of investment product enhances the attractiveness of Hong Kong's platform and among new products offered is the increased range of ETFs (Exchange Traded Fund). Hong Kong is now the largest ETF market in Asia excluding Japan. It has 23 authorised ETFs with market capitalisation of about US$14 billion as of June 2008. Hong Kong has a broad range of diversified ETFs with exposure to regional and single markets and in equity, bond and commodities. The first gold ETF was authorised in July 2008 in Hong Kong, which is also listed in other markets such as Japan and Singapore. It was well received by Hong Kong investors, as the trading volume of the gold ETF reached US$18.8 million on its first day of trading, which was greater than the trading of the same fund in Japan and Singapore combined. Although the ETF market is relatively small compared to the American and European markets, it is gaining momentum in Asia.
