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Shortly before Charles Li boarded a plane for Beijing, the director of the Hong Kong Stock Exchange admitted that there had been "disagreements" on Stock Connect, a commercial link between Hong Kong and mainland China stock markets. At the heart of the dispute, the Shanghai and Shenzhen stock exchanges announced last weekend that domestic investors could not buy shares offering two-class shares through Stock Connect. started trading in Hong Kong. The announcement also prohibited investors from buying "stapled" securities – which group together two or more types of shares in the same company – and foreign companies listed in Hong Kong.
The announcement … must be seen in the light of the battle between
Philippe Espinasse, former head of equity markets at Nomura
This movement was intended to protect investors less aware of the complexities of these actions, specified the stock exchanges. Governance activists have long warned that companies with dual-class shares give more voting rights to founders at the expense of ordinary investors.
But some market experts say that continental stock markets claim to protect investors. that the move could be a way to gain a competitive advantage while limiting the amount of money leaving the country.
The danger for Hong Kong – which prompted Li to jump on a plane to meet with Chinese regulators and foreign exchange officials – is that these measures , if implemented long-term, could threaten its status as an international financial center of Asia
"The announcement by the Shanghai and Shenzhen Stock Exchanges should clearly appear. battle between regional stock exchanges … to secure the listings of Chinese technology companies, "explains Philippe Espinasse, former head of equity markets at Nomura." It is likely to have an impact on the aftermarket evaluations of these companies. "
The divergence between trade comes as China and Hong Kong fight to attract" new economy "companies and attract Chinese technology groups, such as Alibaba, Baidu and JD.com , to the list on their respective trading venues. A number of Chinese technology unicorns have chosen to be listed in New York, which, unlike China, allows shares to two classes and other exotic structures and it is there that 39, Alibaba broke the record for the largest issue, reaching $ 25 billion in 2014.
In an attempt to compete, Hong Kong made the controversial decision to allow companies to quote with dual-class shares, a form of security particularly popular among technology groups and entrepreneurial societies where the founders want to retain greater influence.
Shortly thereafter, the Chinese regulator stated that it would allow certain companies, including Chinese technology groups with dual class shares, to register on the mainland markets by issuing stock certificates. Chinese deposit (CDR), a security equivalent to shares. 19659002] However, if Chinese investors could access two-class companies via Stock Connect, this would reduce the need for the company to issue CDRs on the continent, according to bankers and banks. investors. Xiaomi had intended to offer CDRs, but set aside plans last month without giving any reason for the decision.
"Stock Stock Connect makes CDR insignificant, because if investors could buy Xiaomi via Stock Connect, then why buy? CDR?" Says a banker close to Xiaomi. "The CSRC [the Chinese regulator] does a lot of work for the CDRs to be operational, you have the CDR or you have Stock Connect."
There are has some speculation that the move by Chinese exchanges is a way to prevent money from leaving the continent, at a time when the national stock market is selling. Trade tensions between the United States and China weighed on the Shanghai Composite Index, which fell this month on the bear market after falling 20% from its January high.
and keep the onshore and offshore markets separate, "says Chi Lo, senior economist for Greater China at BNP Paribas Asset Management. "But from a political point of view, Beijing considers that it is a necessary step to prevent capital outflows and curb the volatility of onshore markets."
However, other investors said that competitive tension was a bigger factor. convinced that some want to limit the money leaving the country … but this raises a point about Hong Kong compared to Shanghai and Shenzhen, "said Mark Tinker, head of Asian equities for Axa Investment Managers
. been put on hold, but obviously if Hong Kong Exchange can list these shares and if they then sit on the Stock Connect, then there is no reason for a CDR market. I suspect that this can also be a factor to prevent inclusion, "says Tinker.
Although development could have a limited impact in the short term – Xiaomi is the only company with double class shares listed in Hong Kong – analysts see the smartphone maker sets a master plan and expects to what a group of companies do the same
While the ban harms Chinese investors, foreign investors can still invest in double-stock and stapled companies, as well as foreign companies listed in Hong Kong.
"The ads definitely give you a sense of competition among the stock exchanges," says Eugenie Shen, general manager of Asifma, a Hong Kong company. Market-based group representing the market participants. "But for foreign investors, who buy stocks in China via Stock Connect north, it does not affect them."
However, she added that banning access to foreign companies could undermine the "competitiveness of Hong Kong". Although the measures published this weekend have surprised investors, analysts and bankers say the announcement left the door open to future changes, which has created uncertainty for companies seeking to lift funds on the stock market. [19659002] For Li, the short-haul flight to Beijing on Monday could be one of many trips to the mainland to debate the future of the Hong Kong stock market as it seeks to rival with China and the United States
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By Emma Dunkley
OZY associates with the British Financial Times to offer premium analysis and features. © Financial Times Limited 2018.
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