HK Stock Exchange casts its net wide (hktdc.com)


	HKEx Chief Executive Paul Chow (right) and MICEX President Alexander Potemkin exchange documents at the Memorandum of Understanding signing

Stock market chiefs and analysts have hailed a co-operation agreement between bourses in Hong Kong and Moscow as the first step on the road to companies in the Chinese mainland and Russia seeking cross-border listings.

The agreement between Hong Kong Exchanges and Clearing (HKEx) and Moscow Interbank Currency Exchange (Micex) centres around the exchange of information between the bourses, but it is hoped it will ultimately lead to large-scale mutual investment.

"We hope it will enhance the development of exchanges in the two regions by promoting dual listings and bilateral flow of investment funds," HKEx Chief Executive Paul Chow said after a signing ceremony in Hong Kong in July.

"This will allow non-Russian companies, including mainland and Hong Kong firms, to list on our exchange," Micex President Alexander Potemkin told the South China Morning Post, Hong Kong's leading English-language daily. "If Russian companies list depositary receipts in Hong Kong, investors will be able to get a taste of investing in these companies and learn more about them," he said.

At present, Russia restricts overseas companies from listing in the Moscow stock market but allows depositary receipts to be traded overseas. Hong Kong is not currently able to handle depositary receipt trading, but financial officials are understood to be thrashing out new rules to enable the bourse to take on such business in the near future.

Neutral partner

"In the past, Russian companies have looked to the US, UK and Europe," said Tony Espina, Chairman of the Hong Kong Stockbrokers Association, as he welcomed the move. "A large part of Russia is in the Far East and nearly all of the natural resource activities from oil to minerals are there, so it makes sense for them to trade in the same time zone."

Russia's friendship with China, similar ideology and emerging market status also made the two good bedfellows, he said. "They would prefer to pick a partner that is more neutral," he said.

"There are about 50 Russian companies listed in London and the US. They are all very big companies which are popular with international investors," Mr Potemkin said. "In Asia, we also want to have a market for Russian firms to list. Hong Kong is the best in Asia because it is an open market and has lots of liquidity. It is also part of China which is a good friend of Russia."

Hong Kong investors would like to invest in Russian firms as many of them are energy, oil and raw material firms which have high growth potential, he added.

Mr Espina stressed the Memorandum of Understanding, (MOU) was only an initial step that needs to be followed by more concrete agreements on dual listings and investment flows. Hong Kong investors can already invest directly in the Russian market through the country's 600 brokerage firms or through international investment banks. But Mr Espina said this was subject to capital controls which don't exist in Hong Kong, meaning investors could plough more money into depositary receipts listed here.

Sowing seeds

"It's a real move in the right direction," said Stephen Brown, a member of HKEx's listings committee and Head of Research at Kim Eng Securities. "From little acorns do oak trees grow," he said. Any future listings that might come to fruition would likely be "big chunks" of Russia's commercial sector, he said.

Hong Kong's exchange lists natural resource companies such as CNOOC, Petrochina and mining companies, and the city has a strong pool of oil, gas and mining analysts, Mr Brown said. "I think they (Russian companies) should come here. Local people invest in IBM, so why not Russia?"

Hong Kong earlier this year inked another MOU with Abu Dhabi Securities Market in line with its policy to attract more overseas listings in an attempt to become Asia's time-zone financial centre, comparable with New York and London.

Mr Brown said such agreements demonstrated HKEx's wider ambitions. "We have to go out there and show we are interested in being part of the world and not just China's financial centre," he said.