Nothing to fear from free yuan
Charles Li Xiaojia delivered his first report card since taking over as head of the city’s bourse in January, showing first-quarter profits climbed 35 percent from a year ago.
Although the result fell slightly below market expectations, it was acceptable in view of global volatility.
More time will be needed before one can judge Li fairly. But his performance seems to be a case of “so far, so good.”
The challenge is whether he can usher in a blue sky by turning competition from Shanghai into an opportunity for Hong Kong, as we’re fond of saying there are always opportunities to be had in a crisis.
According to the report card, initial public offerings were still active in the first quarter. But in the financial world, volatility is the nature of the beast – a sunny day becomes cloudy the next morning.
Didn’t British conglomerate Swire shelve plans to spin off its property arm recently? And aren’t talks abound that Russian mining giant Strikeforce is putting off its listing plan?
I’m not sure if Swire now regrets its decision to hold its horses, but its pricing was just too high to attract investors. But Strikeforce’s IPO preparations are apparently still under way.
Our stock exchange is lucky in that it can expect to see more sunny days than most because of, for example, the need for mainland banks to raise capital to meet new regulatory requirements.
China Construction Bank has just approved plans to float shares in Shanghai and Hong Kong, while the Industrial and Commercial Bank of China also intends to sell shares in the SAR. At stake is tens of billions of yuan, or the equivalent.
Certainly, the IPO of Agricultural Bank is bound to be the major focus. The mainland’s third-largest lender by assets is going to sell up to 18 percent of itself in an IPO here and in Shanghai, in order to be listed simultaneously in the A and H share markets in July. That the state giants have included Hong Kong in their capital plans is not coincidental. Indeed, in the case of Agricultural Bank, there was resistance in the mainland for it to be listed here. The saying goes that because Shanghai is setting up an international board, it will be in its interest to see Agricultural Bank solely listed in the mainland, or at least debut in Shanghai ahead of Hong Kong. But the lender still opted for simultaneous listings. Why?
Insiders say this is mainly because of the SAR’s niche. Hong Kong is an established international financial center where capital flows freely. As long as the yuan is not freely convertible, the SAR will remain the preferred destination. Meanwhile, doubts linger whether the A-share market can absorb large IPOs amid weak investor sentiment.
But can there be anything even bigger? The local bourse says it will have to leverage on Hong Kong’s strength to support growth of the mainland financial market and the “internationalization of the renminbi.” Imagine how huge the potential will be after the yuan becomes freely convertible.
While it will bode well for Shanghai with overseas capital flowing into the mainland financial center, it will bode equally well for the SAR, since mainland capital then can also flow out of the country, with most of it heading here.
Once the gate is open, Hong Kong cannot be a loser.