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Can Hong Kong's Stock Market Regain Prosperity Through Reforms and IPOs?

Can Hong Kong’s Stock Market Regain Prosperity Through Reforms and IPOs?

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  • Post last modified:July 4, 2024

Hong Kong’s stock market has been on a roller coaster since the beginning of 2024, marked by a notable downward trend following a robust rally that saw it outperform most global markets in late April. As this rebound now appears to be losing momentum, investors are left wondering about the future. Meanwhile, recent reforms to boost market resilience and the urgent need for significant IPOs to revive market sentiment add complexity to the Hong Kong stock market.

Can the HSI Rebound to 20,000 Points?

The Hang Seng Index surged impressively in late April, driven by a combination of capital inflows and heightened risk appetite. However, May and June brought a reversal. The index saw a dramatic fall of over 10% in a few weeks, dropping back to the 18,000-point level. Some investors are eager to cash in their profits, while others are caught off guard by the rapid correction, raising questions about whether the market rebound is truly over.

The big question is whether Hong Kong stocks can climb back to the 20,000-point mark. The performance of major stocks such as Tencent (700.HK), Meituan (3690.HK), and Alibaba (9988.HK) will be crucial. Tencent and Meituan have shown significant gains this year, increasing 20% to 30%. However, investors who have not yet entered the market may find it unwise to chase these high performers at this stage. Conversely, Alibaba has underperformed, rising by less than 10% compared to the lowest point this year. If major players continue to drive the market higher, Alibaba might lead the next wave of gains.

HKEX’s New Reform

To enhance market resilience, the Hong Kong Stock Exchange (HKEX) will implement the new Severe Weather Arrangements starting 23 September 2024. This new arrangement will allow trading of Hong Kong stocks and derivatives even under severe weather conditions such as Typhoon Signal No. 8 or above and during Black Rainstorm Warnings. This policy aligns with practices in Shenzhen and Shanghai, ensuring uninterrupted trading.

In addition, 2024 marks the 10th anniversary of Stock Connect between Hong Kong and Mainland China. Christopher Hui, Secretary for Financial Services and the Treasury, highlighted this milestone, noting that Hong Kong stocks are now available in RMB counters, allowing investors to trade 24 major stocks in both HKD and RMB. Ongoing discussions with Mainland regulatory authorities aim to enable Mainland investors to directly use RMB to buy RMB-denominated stocks listed in Hong Kong.

The Need for a More Prosperous IPO Market

Beijing’s strict new vetting system for Chinese firms looking to list abroad was predicted to shift business from New York to Hong Kong. Meanwhile, Hong Kong desperately needs a significant IPO to reinvigorate its market. The Hang Seng Index has risen more than 7% this year, but a substantial IPO could provide the momentum needed to push the stock market closer to its 2021 all-time high, currently over 40% below that mark.
IPOs in the city have raised USD 1.5 billion so far this year, according to Dealogic. Some analysts believe Didi Global stands out as a potential candidate for such an IPO. The Chinese ride-hailing company might consider a Hong Kong listing as early as next year, which makes it an ideal candidate to lead Hong Kong’s market revival because An IPO by the company would signify Beijing’s commitment to Hong Kong’s future as a financial center and show China’s willingness to allow private companies to access foreign capital as needed.

HKEX Chairman Laura Cha is optimistic about Hong Kong’s IPO market, noting an increase in applications this year. She emphasized the importance of improving connectivity with Mainland and foreign markets to diversify and elevate Hong Kong’s international status. Additionally, she strongly supported recent measures by the China Securities Regulatory Commission, including REITs in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect.

▲There are currently about 110 listing applications under review in Hong Kong, which is about a 50% increase from the second half of last year. However, the scale is still smaller than in the past. Source: Reuters
▲There are currently about 110 listing applications under review in Hong Kong, which is about a 50% increase from the second half of last year. However, the scale is still smaller than in the past. Source: Reuters

 

Conclusion

The recent decline in the Hong Kong stock market has sparked concerns. However, reforms like the Severe Weather Arrangements and efforts to enhance market connectivity provide a basis for resilience. Nonetheless, the market requires a substantial IPO to revive investor confidence and momentum. Investors must stay alert and adaptable in this complex and constantly changing financial environment.