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HKEx’s China Dimension and the Associated Opportunities
Paul Chow Chief Executive, Hong Kong Exchanges and Clearing Limited
FISD General Meeting, 23 September 2004
2
Overview of the Hong Kong Securities Market
Products and Services Related to Mainland Enterprises Listing Services Derivatives Products Information Services
Opportunities
Conclusion
Agenda
3
Hong Kong Securities and Derivatives Markets –Key Statistics
2004
(as at end of Aug)
# of listings 1,077
48
HK$58 bn
HK$220 bn
HK$15 bn
79,939
# of new listings (equity)
Funds raised by IPOs
Total funds raised
Average daily turnover
Average daily # of derivatives contracts traded
Overview
2003 (year-end figure)
1,037
73
HK$59 bn
HK$214 bn
HK$10 bn
62,013
4
11428
32062719
24401974
995 948 720 714 712 614 589 346 341 309 185 146
0
2000
4000
6000
8000
10000
12000
NY
SE
Toky
o
Nas
daq
Lond
on
Eur
onex
t
Ger
man
y
Toro
nto
Spa
nish
Exc
hang
es
Hon
g K
ong
Sw
itzer
land Italy
Aus
tralia
Taiw
an
Sha
ngha
i
Joha
nnes
burg
Sin
gapo
re
She
nzhe
ng
The sum of HK, Shanghai and Shenzhen ranks 5th in the world
(Market cap = US$1,202 bn)
The Stock Exchange of HK currently ranks 9th among global exchanges by market capitalisation
Global ranking of stock exchanges by market capitalisation(Jul 2004)
Shanghai: 14th
position
Shenzhen: 23rd position
HK: 9th position
US$bil
Source: World Federation of Exchanges, includes main board and other markets
Overview
5
6,778
5,131
3,024
1,9971,471
940 913565 500 491 378 355 296 284 276 255 221 161 138 129 66
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
NY
SE
Nas
daq
Lon
don
Tok
yo
Eur
onex
t
Ger
man
y
Spa
nish
Exc
hang
es (B
ME
)
Ita
ly
Sw
itzer
land
Tai
wan
Tor
onto
Am
ex
Kor
ea
Aus
tralia
Sto
ckho
lm
Hon
g K
ong
Sha
ngha
i
Indi
a
Hel
sink
i
She
nzhe
n
Sin
gapo
re
Shanghai: 17th position
Shenzhen: 20th position
HK: 16th position
US$bil
… and 16th by turnover value
Global ranking of stock exchanges by market turnover (Jan - Jul 2004)
The sum of HK, Shanghai and Shenzhen ranks 7th in the world
(Market turnover = US$604 bn)
Source: World Federation of Exchanges, includes main board and other markets
Overview
6
Global investors are confident in the Hong Kong market
39%Overseas
31%
Domestic - inst.
Distribution of investor trading by origin (Oct 2002 – Sep 2003)
UK
US
Singapore
Mainland China
Japan
Taiwan
Rest of Europe
Rest of Asia
Others
TOTAL
30%
Domestic - Retail
Overview
24
22
9
8
4
1
23
2
7
100
Origin Percent
7
HKEx offers a wide variety of information products through vendors and subscriptions
Type of services• Delayed market data via HKEx’s
webpage & information vendors
• Real-time market data via information vendors
• Historical data (i.e. market data, corporate documents and entitlement records) on a subscription basis
• 63 – disseminate cash market data
• 34 – disseminate derivatives market data
• 16 – participate in the Mainland programme
Number of information vendors
Overview
8
Overview of the Hong Kong Securities Market
Products and Services Related to Mainland Enterprises Listing Services Warrants and Derivatives Products Information Services
Opportunities
Conclusion
Agenda
9
Since the 80s, Hong Kong has played a key role as a bridge between Mainland China and the world
1980 1993 2003 Many HK listed
companies had manufacturing operations in Pearl River Delta
HK- or foreign-incorporated Mainland enterprises listed in HK as Red Chips
H-shares market developed
Some H-shares and red chips dual listed on HK and overseas markets
H-shares index futures launched
Key Events
Since 1993, HK$880 billion of equity capital (49% of total) raised by Mainland companies listed in Hong Kong
H-shares index futures an early success (>6,000 contracts a day)
2004 H-shares
index options launched
Listing Services
10
Mainland China dimension of the Hong Kong market
* Includes H shares, red chips and private enterprises;
Listed issuers 31 Aug 2004
Funds raised by IPOs Jan – Aug 2004
Avg daily equity turnover Jan – Aug 2004
Total HK market Mainland enterprises*
Market capitalisation 31 Aug 2004
1,077
HK$5,782 bn
HK$58.4 bn
HK$13.3 bn
287
HK$1,679 bn
HK$46.5 bn
HK$6.4 bn
27%
29%
80%
48%
Listing Services
11
1962Hongkong BankWhampoa DockHK LandChina LightKM Bus (1933)HK ElectricHK TelephoneYaumati FerryHK TramWheelockJardineSwireLane CrawfordKwong Sang
HongGI Cement
1973Hongkong BankHK LandJardine MathesonHutchison Intern’lE.A. NavigationNew World Dev.WharfChina LightWheelock MardenTaikoo SwireHK TelephoneHK ElectricHang Seng BankWhampoa DockHK & Shanghai Hotels
1983Hongkong BankHang Seng BankChina LightHutchison WhampoaHK ElectricHK LandWharf & GodownSwire PacificJardine MathesonGeneral OrientalHK TelephoneSwire PropertiesCheung KongSHK PropertiesNew World Dev.
1993HSBCHK TelecomSHK PropertiesHang Seng BankHutchison WhampoaChina LightCheung KongSwire PacificHenderson LandWharfHK LandHK ElectricNew World Dev.Jardine MathesonCITIC
May 2004HSBCChina MobileHutchison Wham.Hang Seng BankSHK PropertiesStandard Chartered Cheung KongCNOOCBank of ChinaCLP HoldingsSwire PacificHK & China GasHK ElectricChina UnicomHenderson Land
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Largest companies since 1960s Other largest companies in Aug 2004
Some Mainland enterprises have become the largest listed companies in Hong Kong
Listing Services
12
The 10 largest IPOs in HK since 1993 have all been by Mainland enterprises
Ranking Company*
1 China Unicom 43.6
2 China Mobile 32.7
3 China Life 26,7
4 Sinopec 26.7
5 PetroChina 22.3
6 BOC (Hong Kong) 20.5
7 Ping An Insurance 14.3
8 SMIC 13.9
9 China Telecom 11.8
10 CNOOC 11.0
Largest IPO in the world in 2003
* Includes H shares, red chips and private enterprises
Listing Services
Capital Raised (HK$ bn)
13
Ranking Company nameTotal funds
raised (HK$ bn)1 China Life Insurance 26.7
2 PICC Property and Casualty 6.2
3 Sinotrans 3.9
4 Hopewell Highway Infrastructure 3.0
5 China Resources Power 3.0
6 Weiqiao Textile 2.4
7 AviChina Industry & Technology 2.0
8 Great Wall Automobile 1.7
9 Fujian Zijin Mining 1.3
10 Lee & Man Paper Manufacturing 1.2
Amongst the 10 largest IPOs in terms of funds raised in 2003 in Hong Kong, 8 were Mainland enterprises
Listing Services
14
A comparison of turnover of Mainland stocks inHong Kong and New York – 2003
0102030405060708090
100
China E
aster
n Airli
nes (
1997
)
Jilin
Chemica
l Indu
strial
(199
5)
China S
outh
ern A
irline
s (199
7)
Yanzh
ou C
oal Mini
ng (199
8)
Sinope
c BJ.
Yanhu
a Petr
oche
m. (19
97)
China M
obile
(Hon
g Kon
g) (1
997)
APT Sate
llite (1
996)
CNOOC (200
1)
Sinope
c Sha
nghai
Petroc
hem
ical (1
993)
Brillian
ce C
hina
Automot
ive (1
999)
China T
eleco
m (200
2)
Guang
shen
Rail
way (1
996)
China U
nicom
(200
0)
China P
etro.
& Che
mical C
orp. (
2000
)
Huane
ng Pow
er In
terna
tiona
l (199
8)
PetroC
hina (
2000
)
Aluminu
m Cor
pora
tion of
Chin
a (200
1)
China L
ife In
sura
nce*
(200
3)
HongKong
NewYork
%
Hong Kong accounted for an average of 80 per
cent of total turnover
Date of Listing indicated in bracket
Home market effect is apparent
Listing Services
15
HKEx has launched a number of derivatives products related to Mainland Enterprises
H-shares Index Futures• Introduced on 8 Dec 03 (1,191,676
contracts traded since launch)
• Average daily volume*: 6,423 contracts
• Introduced on 14 Jun 04 (28,188 contracts traded since launch)
• Average daily volume*: 539 contracts
• 15
• 59
• 110
H-shares Index Options
# of Stock Options related to Mainland Enterprises
# of Index Warrants using the HSCEI as underlying index
# of Warrants on H-shares
As at 31 August 2004
Derivatives Products
* August 2004
16
H-shares Index Futures are actively traded since launched
Derivatives Products
H-shares Index Futures Volume Daily Volume and Open Interest(Dec 03 - Sep 04)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04
Volume Open Interest
Contracts
HKEx has implemented a number of initiatives to promote information dissemination in the Mainland
Information Services
May 01HKEx, SSE and SZSE signed an agreement on mutual exchange of listed company information and daily market data.
Nov 01HKEx, SSE and SZSE separately presented mutually exchanged market data on their individual websites as consolidated "China Stock Markets Web".
July 02HKEx launched a marketing programme to promote data dissemination in the Mainland. 16 data vendors have signed up as at 31 August 2004
Feb 03HKEx made available SZSE real-time market data on its MDF distribution network.
July 04HKEx added a section on its China Stock Markets Web to cover information about stocks of SZSE’s Small and Medium Enterprises Board.
Mar 04HKEx signed up TVB for dissemination of SZSE real-time data over TVB’s Galaxy Pay TV Channel.
Feb 04HKEx approved SZSE to cover HK securities market summary in its TV programme - "Trading Day".
May 03HKEx signed up Bloomberg to become the 1st information vendor to obtain SZSE real-time data via MDF.
2001 2002 2003 2004
June 02HKEx entered into agency agreement with SZSE for the marketing, management and redistribution of real-time SZSE data outside of Mainland China.
Jan 04HKEx signed up Shanghai Quanlong to disseminate delayed mid-day and day-end closing prices of selected Hong Kong stocks.
18
Overview of the Hong Kong Securities Market
Products and Services Related to Mainland Enterprises Listing Services Derivatives Products Information Services
Opportunities
Conclusion
Agenda
19
HK’s competitive advantage
Mainland enterprises can benefit from exposing to intermediaries and investors familiar with both Chinese and Western practices
A part of China with extensive exposure to the West
Established market discipline helps bringing Mainland enterprises’ standards in corporate governance, accounting, disclosure and management at par with international best practices
Opportunity
HK is well positioned to capture the opportunities presented by the rapid growth of Mainland China
Mainland development requires foreign investment
Most open market in Asia
A free, transparent and fair securities marketplace
Opportunities
20
Initiatives• Enshrine key listing provisions in statute: Regular financial reporting obligations of listed companies Disclosure obligations in relation to corporate transactions (particularly connected
transactions) Obligation to disclosure price-sensitive information
• Establish Independent Investigation Board and Financial Resources Review Panel for the accounting profession
• Continue to move forward in the following areas: Code on Corporate Governance Practices and Report on Corporate Governance
Practices (already implemented) Initial Listing Criteria and Continuing Listing Obligations (in progress) Delisting Mechanism (in progress)
Regulation of Sponsors and IFAs (in progress)
Regulations
Strategy – Enhancing market quality
Corporate governance
Opportunities
21
Initiatives• Enhance listing services to Mainland issuers Improve efficiency of listing application process Improve HKEx’s service culture
• Leverage HKEx’s representative office in Beijing and special representatives in Shanghai & Guangzhou to improve liaison & market research activities in Mainland
• Conduct international roadshows to promote Hong Kong market to overseas intermediaries/investors
• Develop more Mainland-related products
• Further explore co-operation opportunities with Mainland exchanges
• Expand information dissemination in the region, particularly in the Mainland
Mainland marketing
Strategy -- Becoming a Mainland partner
Mainland-related products & services
Opportunities
22
• Mainland China’s growth and development presents tremendous business opportunities
• Hong Kong is in a unique and favourable position to capture these opportunities
• HKEx is committed to build on its historic success and further strengthen its role as the premier capital formation centre for Mainland enterprises as well as an international financial centre
Conclusion
Conclusion
Thank you
