Catering to an increasing number of listings especially from the Chinese mainland, the Hong Kong Stock Exchange opened its renovated trading hall in January

Hong Kong's thriving stock market should have another record breaking year of fund-raising, with rivals from New York to Shanghai left in the shade in the hunt for corporate listings from China.

"We should have a great year again. This year we should raise more than HK$200 billion (US$26 billion)," said Kenny Tang, associate director of Tung Tai Securities. That would be up from HK$192 billion (US$25 billion) last year, itself a record. Two mega-listings by ICBC and Bank of China, China's biggest and third-biggest lenders respectively, should raise HK$130 billion(US$17 billion) alone, said Mr Tang.

"Most of the mainland's biggest companies are likely to come and list in Hong Kong," he said.

Hong Kong, with its wholly open financial structure which allows the free flow of capital, has been on a hot streak of China listings. Last year these included the second biggest lender China Construction Bank (CCB) and its biggest coal producer China Shenhua Energy.

International exposure

Chinese companies feel comfortable listing in Hong Kong due to a shared language and culture, and they also gain access to a huge array of international investors. This point was underlined in February when HSI Services, which compiles Hong Kong's famous Hang Seng Index, said it would adjust rules to allow Chinese H share companies such as CCB to be included in the benchmark for the first time.

"Hong Kong should keep its leading position for at least the next three to five years," said Steven Leung, director of institutional sales at UOB Kay Hian Securities.

The success of the city's stock market is feeding on itself, with investors globally acknowledging Hong Kong as the place to play the China story. That in turn is drawing more Chinese companies to list on Hong Kong's market, which attracts even more investment dollars.

The market had an average daily turnover of HK$30 billion (US$4 billion) in January, up 43 per cent from a year earlier, according to exchange data. That makes the market big and liquid enough to be able to handle large new listings. The city also has the critical mass of professionals in a wide range of services needed to support the investment community and listed companies, say Edmond Chan, a partner with accounting giant PricewaterhouseCoopers (PwC).

"Hong Kong will continue to be the major platform for Chinese companies to tap the markets," Mr Chan said.

Political advantage

While Hong Kong has its unique constitutional, political, economic and legal status as a Special Administration Region, it was still part of China, adding a political factor to the attractiveness for Chinese companies.

Elsewhere in Asia, Singapore's market is just too small to be able to absorb China's biggest companies, while South Korea suffers from the domestic focus of its investors and looks unlikely to fulfil its ambitions to become an international financial centre, said Mr Tang.

"It is not just about raising money in Hong Kong, it's also an image thing," he added. "The companies which list in Hong Kong are viewed as having better corporate governance and transparency."

Companies which tap the Hong Kong market have to meet high standards of corporate behaviour or find themselves punished through a falling stock price.

But New York looks likely to stay mostly on the sidelines as a procession of Chinese giants seek stock market listings. Onerous new regulations introduced after the Enron scandal in 2002 are a big deterrent. The huge amount of book-keeping and accounting work required of US-listed companies requires large amounts of money and management time which most Chinese companies consider better spent elsewhere.

The London stock exchange has also been looking to muscle in on the China listings market, but its investor base tends to be more focused on Europe than the China story, said Mr Tang, making it difficult for Chinese companies to achieve the valuations they are looking for when they come to market.

Solid position

The most credible threat to Hong Kong's dominance may come from China itself where the domestic A share markets in Shanghai and Shenzhen are looking forward to the end of a painful period of reform. The A share markets are undergoing a process whereby non-tradable shares owned by government agencies will become tradable, with about half of the US$250 billion reform process complete.

The progress is clearing the way for the A share markets to re-open to IPOs this year after being closed to new listings since May last year. However, these markets do not offer unfettered access to foreign investors.

Chinese companies are increasingly looking to expand abroad. Listing in Hong Kong on a recognised international market is more helpful, not only through raising the company's corporate profile but also by raising funds in a freely tradable hard currency of Hong Kong dollars.

Related links
Tung Tai Securities 
UOB Kay Hian Securities
PwC