Hong Kong exchange’s race to attract big Chinese technology listings comes with one big risk, say money managers: The city’s ability to keep the investing dollars flowing in as it’s roiled by political tensions.
Hong Kong Exchanges & Clearing Ltd. has been pulling out all the stops to attract China’s brightest stars as questions mount about their U.S. listings. Approvals for JD.com Inc. and NetEase Inc. were greenlit in a matter of weeks due to rule changes and the fact that they already had listings. Approvals for initial public offerings typically take months.
The bourse is also pushing to cut the settlement time for listings to boost liquidity, an issue that has dogged multi-billion-dollar deals in the past, causing dislocations to interest rates and the currency. Some investors now fear a flood in issuance will be hard to absorb and be left with little support, especially at a time when the international investor base the city needs is becoming increasingly worried about U.S. retaliation after Beijing proposed a controversial new security law for Hong Kong.
“If the U.S. creates measures barring U.S. funds from investing in Chinese company IPOs, or listings in Hong Kong, that could really hurt liquidity,” said Louis Tse, Hong Kong-based managing director of VC Asset Management Ltd. There is already concern, he said, about the impact of the proposed security law on international investors.
While Hong Kong led the world in listings last year, turnover on the exchange is just about a quarter of the dollar value relative to U.S. peers. Alibaba Group Holding Inc. has drawn just a fraction of activity in Hong Kong compared with New York after last year’s $13 billion secondary listing, partly due to a local stamp duty which curbs high frequency trading. Alibaba is not part of the link through which Chinese mainland investors can place money in Hong Kong, a decision that’s being held up in Beijing.
The recent legislative push from Beijing has reignited large pro-democracy protests in Hong Kong and fanned tensions with the U.S. Trump has threatened to revoke Hong Kong’s special trading status, which could potentially include the right to freely trade the dollar to which its domestic currency is pegged.
