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Hong Kong Exchanges & Clearing (HKEx) said yesterday that it is in talks with exchanges on the mainland to set up a joint venture company, a move that could give Hong Kong a strategic advantage as China liberalises its capital account.
The announcement came on the heels of Chinese vice-premier Li Keqiang’s visit to the city, when he unveiled plans to promote more cross-border investment between Hong Kong and China. The potential deal between Hong Kong and exchanges in Shanghai and Shenzhen marks the first time that HKEx has explicitly expressed interest in collaborating with other exchanges.
“HKEx has agreed in principle to enter into detailed discussions with the Shanghai Stock Exchange and the Shenzhen Stock Exchange with a view to establish a joint venture company to be incorporated in Hong Kong,” the company said in a statement posted on its website yesterday.
“Currently the possible areas of business operation of the joint venture company include, but are not limited to, the development of index and other equity derivative products and the compilation of new indexes,” it said.
HKEx didn’t give any further information on the establishment of the JV and noted that “no binding agreement” has been entered into as yet, but the market took the news positively.
Shares in HKEx, which itself is listed on the exchange, jumped 6.8% at one point before ending yesterday at HK$147.3 ($19), up by 3.37% versus a 1.34% drop in the Hang Seng Index. The stock has fallen around 20% so far this year and is currently trading at a 2012 price-to-earnings ratio of 26 times.
Calling it the “right time” and a “right move”, analysts at Citi see this as a turning point for HKEx’s strategy and outlook.
“The potential JV is not a standalone initiative, in our view. Rather, we see it as part of HKEx’s initiative to capture more China-related opportunities,” said Darwin Lam, an analyst at the bank, in a report.
“More importantly, we think the potential JV with Shanghai and Shenzhen exchanges, with Hong Kong exchange’s recent initiatives, will render HKEx well positioned for the opportunities that arise as China liberalises its capital account and support Hong Kong as an offshore renminbi centre,” said Lam, who rates shares in HKEx as a “buy” and “low risk”.
“The move would ease the worries over the competition between, say, Shanghai and Hong Kong exchanges, it will also pave the way for launching more investment products in the future,” said Ben Kwong, chief operating officer at KGI Capital Asia.
Shanghai’s bourse operator announced last year it would launch a new international board to attract overseas companies to list in the city. The move triggered speculation that Shanghai was setting itself up as a rival to its Hong Kong counterpart, which has welcomed big-name international issuers such as Prada, Samsonite and Glencore this year.
Charles Li, the first Chinese national to be chief executive of the Hong Kong exchange, has been trying to set close ties with the mainland since taking office in 2009. His measures have included extending trading hours to better align with traders on the mainland. HKEx said it made the change because more than 70% of the trading volume on the local stockmarket is in mainland-focused securities and the number of cross-border listed equities will continue to increase.
Hong Kong hosted the first-ever offshore renminbi-denominated IPO earlier this year when Hui Xian Real Estate Investment Trust, which is sponsored by Li Ka-shing-controlled Cheung Kong Holdings, raised $1.6 billion in April.
The exchange’s new website was attacked by hackers twice last week, forcing the bourse operator to suspend trading in seven companies, including the exchange itself and HSBC.
