Protests rattle Hong Kong. But companies haven't left town yet

Hong Kong appears to retain its crown as the top stock exchange for world IPOs this year, according to data from Refinitive. The city had already hosted a success list from AB InBev earlier this fall and is now in the process of Alibaba & # 39; s ( BABA ) secondary listing in the coming weeks. The latter could lift the Hong Kong Stock Exchange over the New York Stock Exchange and Nasdaq as the largest public offering of the year .
"I haven't seen the turmoil here [in Hong Kong] affect the investment scene yet," said Houston Huang, head of China Investment Bank for JPMorgan ( JPM ) . He pointed out that many of the big companies listed in Hong Kong do not depend on the city for their business and that they are not affected by protests.

"Plus, all the conditions that make Hong Kong one of the best trading and investment platforms have not changed," he added. For example, the city has programs that facilitate investment between China and the rest of the world. "I don't see it as a financial center shaken."

Despite the rise of mainland cities such as Shanghai and Shenzhen, Hong Kong is still China's global financial center. Chinese companies use the city as a place to raise capital and expand their investor base, or as a launch pad for expansion abroad. Many Chinese investors use Hong Kong as a way to spend money abroad.

However, it is important that the rest of the world also uses Hong Kong as a gateway. The city's semi-autonomous justice system and close ties to the mainland give Western companies an important link to the world's second largest economy.

The city's stock market is an important measure of trust for companies looking to raise capital and investors. Revenue from the public offering in Hong Kong has reached $ 22.3 billion this year, according to data from Refinitive, placing it third on the Nasdaq and New York Stock Exchange.

"China is still the fastest growing market in the world. Investors are enthusiastic about taking advantage of the opportunities here," Huang said, adding that Hong Kong also means something economic. "Despite what has happened on the street, I do not think the role of a crucial pipeline for money between China and the rest of the world will diminish. At least not now."

AB InBev & # 39; s ( BUD ) about $ 5 billion listings of the Asian business in September, for example, was the second largest year after Uber & # 39; 39; s ( UBER ) New York Stock Exchange listing. The AB InBev offering served as a catalyst for capital to continue to flow into the market, Huang said.
  Alibaba wants to raise billions by listing its shares in Hong Kong

IPOs in Hong Kong has jumped since AB InBev started trading in late September. In October, 22 companies debuted on the Hong Kong market, against seven in September and one in August. There have been 16 new listings in November so far.

Meanwhile, Alibaba could raise as much as $ 13.4 billion by issuing 500 million shares in the Hong Kong secondary listing, according to a prospectus for the transaction filed with the SEC on Wednesday.

Short-term concerns

This is not to say that the market has been completely calm. As protests in Hong Kong escalated this week, the reference included the Hang Seng Index ( HSI ) . The index dropped nearly 2% on Wednesday and has lost more than 4% so far this week, setting it on pace for the worst week in more than three months.
Real estate and retail have been hit hard as things get worse for the local economy, which recently plunged into its first recession in ten years. Hong Kong Airlines Cathay Pacific ( CPCAY ) said Wednesday that the number of inbound passengers fell 35% from the previous year in October, and it warned that revenues in the second half of 2019 would be significantly weaker than the first six months of the year.

Protesters even blocked streets this week in the city's central business district – an unusual sight of the day during the more than five months of demonstrations.

Traders, however, see the stock market shake as a short-term issue.

"Overall, the market is dominated by companies whose businesses are located elsewhere, mostly in China," said Ken Wong, Asia specialist in the equity portfolio at Eastspring Investments. "I would say that the US-China trade war is a bigger factor driving the market in the longer term."

The Hong Kong stock market is still showing a positive return for 2019. The Hang Seng Index, which is mostly Chinese companies, has increased 2.8% since the beginning of the year.

"The protests are a geopolitical event. But in business, it's a different story," added Wong .

Money in the money market

There are some signs of tension in Hong Kong's financial markets. The city's offer of a one-month interbank rate, a short-term loan rate between the banks, hit 2.39% Wednesday – the highest in three months.

A higher interest rate on interbank loans means that it is more expensive to borrow money and is usually triggered by a cash flow.

The Hong Kong Monetary Authority – the city's de facto central bank – said earlier this week that the city's banking system is still solid and has good liquidity.

Meanwhile, Wong said the borrowing rate was far lower than during the Asian Asian crisis and the global financial crisis of 2008.

"In 1997, tensions were high in Hong Kong's financial market, when the Hong Kong dollar and the banking system were attacked," he said . "But today the financial system is solid. I haven't seen any panic yet."

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