Hong Kong has the second largest securities market in Asia after Tokyo. Its efficiency and risk management systems are among the best in the world.
Hong Kong has one of the world's most liberal, active and liquid securities markets. There is neither control over capital movements nor capital gains or dividend income tax.
Being the most liquid overseas market for mainland enterprises, Hong Kong's capital market will play a key role in funding China's state-owned enterprises reform and private enterprises' expansion, as well as its massive infrastructure development program.
Range of services
Hong Kong has the second largest securities market in Asia after Tokyo. There were 824 listed companies as of June 2003, with a total market capitalization of HK$3,907 billion (US$501 billion).
Hong Kong's securities market is also among the world's most liquid. Total turnover for the first six months of 2003 amounted to HK$842 billion (US$108 billion), equivalent to an average daily turnover of HK$7 billion (US$892 million).
Hong Kong's securities market is the second most active in Asia in terms of the amount of capital raised. In 2002, companies raised HK$110 billion (US$14 billion) from the main board of Hong Kong's stock market.
The launch of the Growth Enterprise Market (GEM) in November 1999 for smaller and high growth companies provided impetus for fund raising activities. As of June 2003, 175 companies were listed on the GEM. A total of HK$970 million (US$124 million) were raised in the first six months of 2003.
Service providers
Trading activities of the securities industry are provided by investment banks, commercial banks, finance companies and securities brokerage companies.
Investment banks are the principal underwriters for initial public offerings in the primary market. Hong Kong's highly liberal and liquid securities market has attracted many international investment banks and securities house to build their presence here.
In the secondary market, local retail customers are served mainly by local brokers and banks whereas institutional buyers are principally being served by the international brokers and investment banks.
At March 2003, the securities industry as a whole employed 13,409 people.
Exports
Hong Kong's securities market has been increasingly internationalized. There has been a continued rise in the participation of international investors in the market. Many of the initial public offerings through the Stock Exchange are also made global. The majority of these issuers are supranational bodies, whose issues are almost invariably accompanied by global fund raising.
Being the most liquid overseas market for Mainland enterprises, Hong Kong is an important center for raising capital for the Chinese mainland. As of June 2003, among the 81 mainland enterprises that had listed in overseas stock markets, 80 of them have listed in Hong Kong (they are commonly known as H-shares), raising an accumulated total of HK$ 153 billion (US$20 billion).
The listing of overseas incorporated companies, including those from the Mainland, benefits not only the securities industry but also other service industries, such as accounting and legal, associated with the initial public offering and subsequent compliance requirements.
Industry Development and Market Outlook
Latest development
The Hong Kong Exchanges has formed alliance with London Stock Exchange to introduce a cross-trading program. The minimum brokerage commission was removed on 1 April 2003.
China's World Trade Organization (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 debt.
Moreover, as greater foreign ownership is allowed in telecommunications, banking, insurance and other sectors, more mainland firms will seek a listing in Hong Kong to tap overseas funds. Restructuring among China's enterprises (mergers and acquisitions) should increase in preparation for intensified foreign competition. Restructured mainland companies will rely more on equity finance for expansion as part of the regional trend, bringing more business to Hong Kong.
Closer Economic Partnership Arrangement between Hong Kong and the mainland (CEPA)
In addition to the mainland's WTO liberalization, Hong Kong's securities sector and professionals will benefit from the recently signed CEPA agreement with the Mainland. Under CEPA, Hong Kong Exchanges and Clearing Limited is permitted to set up a representative office in Beijing. Hong Kong professionals are permitted to apply to practice in the Mainland according to relevant procedures. Moreover, Hong Kong will gain from "Article 13 - Financial Cooperation" under CEPA, which encourages more Mainland companies to seek listing in Hong Kong. The Article states that "The Mainland will, following the principles of observing market discipline and enhancing regulatory efficiency, support eligible Mainland insurance companies and other companies including private enterprises, in listing in Hong Kong."
While Hong Kong is already the most liquid overseas market for Mainland enterprises, Hong Kong Exchange setting up a representative office in Beijing will further facilitate Mainland enterprises' listing in Hong Kong. CEPA not only paves the way for Hong Kong securities professionals to practice in the Mainland, but also help them to enrich their Mainland client network and lay the groundwork for helping Mainland clients listing in Hong Kong.
(Source: Hong Kong Trade Development Council)
