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The Hong Kong Capital Markets 

April, 2015 - Ronny Chow & Kevin Tong

In several recent years, Hong Kong’s equity capital market has raised the most new funds from IPOs, in some of those years raising more than London and New York combined. A global finance centre There were a number of massive listings in the market before the financial crisis, notably of state owned Chinese banks. These gave a strong impetus to the emergence of Hong Kong as a key financial centre. A further important development in 2007 was the opening of the local market to international listings beyond the traditionally accepted jurisdictions of Hong Kong, the Cayman Islands and Bermuda and (since the early 1990s) mainland People’s Republic of China. 


This opening up had a relatively slow start because of the financial crisis but from 2009 started to move more rapidly, with some emphasis on natural resource and luxury goods companies. In 2009 the primary listing of the aluminium company RUSAL (incorporated in Jersey) took place, and subsequently other companies such as the Italian fashion company Prada and also L’Occitaine and Samsonite (incorporated in Luxembourg) listed in Hong Kong. In Glencore’s listing in 2011 the primary listing was in London but a substantial amount of cash was raised on the Hong Kong market.


There have also been a number of secondary listings in the market by way of introduction without raising new cash, by companies like Vale and Coach. 


The regulatory environment


The reasons for the raised profile of Hong Kong as a capital market have not in any significant way included regulatory arbitrage. In fact the nature of Hong Kong’s regulatory regime and in particular a degree of regulatory conservatism (driven largely by a desire to protect significant retail investor participation in the market) has resulted in the jurisdiction being less competitive in terms of attracting certain types of IPO i.e. companies where the controlling shareholders wish to have weighted voting rights or other types of less usual control and/or governance structures - Alibaba being the most prominent recent example. There is currently a debate going on in Hong Kong as to whether that approach should be changed.


Rather, the development of the market in terms of listings of foreign companies has been driven by the liquidity that is in the region and the importance of China to many of these companies - so for the fashion companies for example there has also been the factor of a raised profile in what is a hugely important region. 

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