The Zhitong Finance App learned that the Chief Executive of the Hong Kong Stock Exchange pointed out in the latest blog “CEO Blog: Laying Out the Future and Building a Multi-Asset Ecosystem” that the HKSAR Government recently announced the first five-year plan for Hong Kong's economic and social development, actively connecting with the country's “15th Five-Year Plan”. One of the most important plans is to consolidate and enhance the status of an international financial center. As the core infrastructure of Hong Kong's financial market, the Hong Kong Stock Exchange should shoulder the heavy responsibility of enhancing Hong Kong's status as an international financial center. The long-term strategy of building a multi-asset ecosystem is also fully in line with the country's “15th Five-Year Plan” and Hong Kong's five-year plan to strengthen the functions of an international financial center.
The article points out that in the future, the Hong Kong Stock Exchange will focus on building a more complete and internationally competitive multi-asset ecosystem and actively promote the implementation of Hong Kong's five-year plan. In terms of “world needs” and “national needs,” in the past two years, in the face of changes in the geographical environment and the rise of China's scientific and technological innovation, more and more international investors have begun to diversify their investments and set their sights on Asia, which has higher potential for growth, and investing in China has become a must for international investors. Today, international investors are no longer debating “can China invest”; they not only want to invest in Chinese stocks, but also want to diversify the allocation of other asset classes.
On the other hand, China's economic transformation and industrial upgrading are accelerating, and there is strong demand for financing from technology companies and “overseas” enterprises, and demand for diversified investment and orderly “going overseas” of mainland capital is also very strong. As China's assets underwent a historic revaluation, demand for the RMB as an investment currency began to rise, and the country is vigorously promoting the internationalization of the RMB.
Faced with these new trends and demands, the answer given by the Hong Kong Stock Exchange is to connect “people, goods and markets” as the main line to build a more comprehensive and internationally competitive multi-asset ecosystem. On the “human” side, the Hong Kong Stock Exchange will continue to bring together mainland and international issuers, investors, financial institutions and long-term capital to broaden the market participation base; on the “goods” side, the Hong Kong Stock Exchange will further expand diversified products and risk management tools such as fixed income, currencies, commodities, etc. on the basis of consolidating stock business; on the “market” side, the Hong Kong Stock Exchange will continue to enhance the market infrastructure, promote fintech applications and market connectivity, and further enhance Hong Kong's function, resilience and long-term competitiveness in global capital allocation, RMB internationalization and risk management.
Specifically, the Hong Kong Stock Exchange is preparing to start in the following four directions:
1. Enhancing the competitiveness of international financing platforms
The article points out that the world's leading financing capacity has always been a strength that the Hong Kong stock market is proud of, and it is also a reform direction that the Hong Kong Stock Exchange attaches great importance to. This year, the IPO market continues to be active last year, and more than 80% of IPOs are subscribed by international institutions as cornerstone investors. In order to enhance Hong Kong's competitiveness as an international financing platform, the Hong Kong Stock Exchange keeps pace with the times according to market changes and continues to optimize the listing mechanism based on advanced experience in the international market.
Since 2018, the Hong Kong Stock Exchange has carried out many listing reforms in line with economic development trends to attract different types of companies, especially new economy companies, to go public and provide global investors with richer investment opportunities. Last year, the Hong Kong Stock Exchange optimized the IPO pricing and distribution mechanism based on international market experience, increased the distribution ratio of institutional investors with more bargaining power in new shares, and improved the efficiency of IPO pricing. In July of this year, the Hong Kong Stock Exchange introduced a new round of listing system reforms, including easing listing requirements for companies with the same shares and different rights, making it easier for companies already listed overseas to go public in Hong Kong, providing greater flexibility for biotech companies and specialty technology companies, and allowing all companies to choose to submit listing applications confidentially.
Currently, the Hong Kong Stock Exchange is carrying out the second phase of consultation to improve the competitiveness of the listing mechanism. It is proposed to optimize the rules for transactions, connected transactions and spin-off listings that must be announced, reduce compliance costs, and increase the flexibility of mergers and acquisitions, restructuring and business spin-offs of listed companies. In the future, the Hong Kong Stock Exchange will also conduct consultations on optimizing the listing system for specialty technology companies and GEM.
Furthermore, in terms of international cooperation, the Hong Kong Stock Exchange enhances the liquidity of both markets and creates a win-win situation through measures such as joining forces with international exchange partners to develop indices and encourage ETF interconnection. In the future, the Hong Kong Stock Exchange will continue to host key promotion activities in the Middle East, ASEAN, the “Belt and Road” countries and regions, etc., to introduce the advantages of the Hong Kong market, and deepen financial cooperation with local exchanges to attract more international companies to go to Hong Kong for major or secondary listings. In short, the Hong Kong Stock Exchange will continue to optimize its listing system, trading platforms and issuer services to enhance Hong Kong's competitiveness as an international financing platform and facilitate high-quality mainland and international enterprises to finance in Hong Kong.
2. Deepen the breadth and depth of the secondary market ecosystem
The article mentioned that the prosperity of the primary market is inseparable from the activity of the secondary market. Since last year, trading in the Hong Kong stock market has become more and more active, thanks to the combined effects of international investors' renewed attention to Chinese assets and various reforms in the Hong Kong stock market. However, under the multi-asset ecosystem strategy, the Hong Kong Stock Exchange still has a lot of work to do. One of its major priorities is to enrich product supply, enhance liquidity, and deepen the breadth and depth of the secondary market ecosystem.
In terms of rich products, the Hong Kong Stock Exchange encouraged the issuance of different types of ETF products and vigorously entered the index business. It launched the Hong Kong Stock Exchange Technology 100 Index and several cross-market stock indices to facilitate issuers to develop diversified investment products linked to these indices. In August of this year, Chairman Wu Qing of the China Securities Regulatory Commission said while attending the offshore RMB treasury bond futures listing ceremony in Hong Kong that the China Securities Regulatory Commission supports index companies from the two regions to strengthen cooperation, launch more indices based on Chinese assets, push industry institutions in the two places to launch more ETF products, and jointly enhance the international influence of the Chinese index and Chinese assets. The Hong Kong Stock Exchange is very concerned about this opportunity and looks forward to cooperating with mainland peers to create product synergy and make it easier for global investors to allocate Chinese assets.
To make it easier for investors to manage stock market risks and diversify investment strategies, the Hong Kong Stock Exchange has also accelerated the pace of derivatives development. Since the beginning of the year, 38 new weekly stock options have been added, 12 new stock option categories will also be added in November, and stock option contracts with weekly and monthly maturity will also be provided. In the future, HKEx will continue to develop more stock indices and launch more short-term stock options, themed futures and options to further enrich the stock derivatives ecosystem.
In terms of improving trading efficiency and market liquidity, the Hong Kong stock market has implemented reforms in recent years, such as simplifying trading units per lot and lowering the minimum price. The results are beginning to show. Currently, the Hong Kong Stock Exchange is compiling market opinions on shortening the stock market settlement cycle, hoping to lead the industry towards the T+1 settlement cycle as soon as possible and improve the financial efficiency of the Hong Kong stock market.
In terms of optimizing connectivity, the Hong Kong Stock Exchange and mainland partners are preparing to include real estate trusts (REITs) in the Shanghai-Shenzhen-Hong Kong Stock Connect and the RMB stock counter in the Hong Kong Stock Connect. They also hope to further broaden the scope of investment in the Shanghai-Shenzhen-Hong Kong Stock Connect. They also hope to provide overseas investors with richer risk management tools to invest in mainland A shares, thus attracting more international capital to allocate Chinese assets through Hong Kong.
Furthermore, the Hong Kong Stock Exchange is also committed to continuously improving market convenience for investors, including supporting paperless securities reforms and extending trading hours. The Hong Kong Stock Exchange is actively studying extending the night market trading time for derivatives products. As for extending the trading time in the stock market, the Hong Kong Stock Exchange will start leading market discussions to find a solution acceptable to all parties in the market.
3. Expand the fixed income, currency and commodities ecosystem and promote the internationalization of the RMB
The article points out that if any international financial center wants to attract and retain massive amounts of capital, it must provide as rich a “shelf” as possible, not only with a wide variety of stock products, but also with a rich variety of fixed income products and commodities. Stock products are Hong Kong's traditional advantage, but the fixed income and commodities business is just getting started and requires significant investment.
At the same time, the internationalization of the RMB is entering a new stage, focusing on enhancing the function of RMB as an investment and financing currency. If the Hong Kong market can use offshore RMB capital pools to provide rich fixed income, currency and commodity products denominated in RMB, it will inevitably increase the willingness of international investors to hold RMB assets for a long time, and also enhance the attractiveness of international financial centers. Therefore, the construction of Hong Kong's fixed income and commodity ecosystem should seize the opportunities brought by the internationalization of the RMB.
In terms of building a fixed income and money market, the Hong Kong Securities Regulatory Commission and the Hong Kong Monetary Authority jointly released Hong Kong's “Fixed Income and Money Market Development Roadmap” last year, which aims to make Hong Kong a global fixed income and currency center and consolidate Hong Kong's central position as a global offshore RMB hub. The work plan of the Hong Kong Stock Exchange is fully in line with the direction of the “Road Map”. The Hong Kong Stock Exchange will act as a “construction team” to implement the road map, fully implement the initiatives in the road map, and improve the offshore RMB ecosystem.
First, the Hong Kong Stock Exchange is rich in RMB fixed income assets. Bonds are the most important category. The Hong Kong Stock Exchange will continue to attract more mainland, Hong Kong and international issuers to issue and list bonds in Hong Kong, especially RMB bonds (dim sum bonds). As of September 24, the issuance scale of dim sum bonds listed on the Hong Kong Stock Exchange this year reached RMB 266.9 billion, an increase of 14% over the previous year. The issuance scale is expected to reach a new high this year. While attracting the listing of bonds, the Hong Kong Stock Exchange is also actively preparing the first offshore RMB bond index. With an index, the market can further develop bond ETFs and other index-linked products to facilitate the allocation of RMB bond assets. The Hong Kong Stock Exchange hopes to form a virtuous cycle as a result: bond issuance brings more investable assets, more indices, and ETF products, and new investment demand will in turn support more issuance.
Second, after increasing the supply of RMB bond products, risk management capabilities must also keep up. Therefore, the Hong Kong Stock Exchange launched five-year Chinese treasury bond futures this year to provide international investors with RMB interest rate risk management tools. Treasury bond futures form a perfect synergy with Bond Connect and Swap: Bond Connect solves RMB bond investments, swap provides flexible OTC interest rate risk management, and treasury bond futures provide standardized on-market hedging and price discovery tools. In the future, the Hong Kong Stock Exchange hopes to gradually enrich critical periods when conditions are ripe, so that investors can manage the risk of bonds over different periods of time, and push the offshore market to form a more complete RMB interest rate curve.
Furthermore, the repurchase market is an important financing foundation for the fixed income market. The Hong Kong Stock Exchange is studying the establishment of offshore RMB bond repurchase market infrastructure and exploring centralized clearing services for bond repurchases, hoping to improve the liquidity and financing efficiency of offshore RMB bonds.
In terms of commodities, the Asian economy continues to lead the world, spawning strong demand for commodities, yet Asia does not have a commodity market with global influence; China is already the world's largest consumer and importer of commodities, but the pricing power in the global commodity market is clearly insufficient. These provide an entry point for the development of Hong Kong's commodity ecosystem. The Hong Kong Stock Exchange will rely on its London Metal Exchange (LME) and precious metals business to support the construction of Hong Kong's commodity ecosystem.
As the world's largest basic metals market, LME will soon launch the LME Shanghai Hot Rolled Coil Futures Contract in cooperation with the Shanghai Futures Exchange this month to help China's commodity prices “go overseas” and enhance the international influence of Chinese prices. Furthermore, the number of delivery warehouses approved by LME in Hong Kong has increased to 19, which greatly facilitates mainland metal traders. In the future, LME will cooperate with warehouse operators, logistics service providers and other market stakeholders to further expand Hong Kong's storage capacity and enhance the functionality of the warehousing network. The Hong Kong Stock Exchange is also exploring ways to better connect the Hong Kong commodities market with other markets in the Greater Bay Area. The LME Clearing House has also further optimized the use of offshore RMB as collateral this year. This move not only helps promote the internationalization of the RMB, but also provides convenience for participants in the Chinese market. In terms of precious metals, the Hong Kong Stock Exchange has reactivated dollar-denominated gold futures this year, and will soon launch redesigned renminbi-denominated gold futures to expand the use scenarios of RMB in investment, commodity trading and risk management.
4. Upgrading market infrastructure
The article concludes by pointing out that building a multi-asset ecosystem must be supported by perfect market infrastructure. HKEx will continue to invest in and independently develop future-oriented market infrastructure, including building the Pioneer Derivatives Platform and upgrading the Pioneer Spot Product Platform. The Pioneer Star derivatives platform will enhance the trading, post-trade and risk management capabilities of the Hong Kong derivatives market, and will be built in a modular manner to support the addition of new products, optimization of the market microstructure and introduction of other functions in the future. The Pioneer Star Spot Platform optimizes post-transaction services in the spot market in stages, enhances settlement and settlement infrastructure, and provides market participants with more efficient, smooth and modern services. The construction of the Pioneer Star platform will support the Hong Kong Stock Exchange to launch new products more flexibly and connect more market participants in the future.
The Hong Kong Stock Exchange is also studying the establishment of a tokenization platform to support multiple assets, using commodities and carbon credits as pilot projects to explore tokenization applications.
The Hong Kong Stock Exchange is applying artificial intelligence to market supervision and compliance supervision of listed companies to improve operational efficiency. On the payment side, the Hong Kong Stock Exchange is cooperating with the Hong Kong Monetary Authority on a pilot project to use “CyberHong Kong dollars” to pay prepaid security deposits during post-market trading periods to enhance the risk management capabilities of the derivatives market during non-business hours of banks. The Hong Kong Stock Exchange will also work closely with the Hong Kong Monetary Authority to accelerate the commercialization, internationalization and modernization of expedited settlement, upgrade the Central Settlement System (CMU) for debt instruments, promote the interconnection of central securities custodian platforms for local stocks and bonds, and unleash the potential for cross-asset collaboration. In addition, Bond Connect, a joint venture between the Hong Kong Stock Exchange and China Foreign Exchange Trading Center, is developing an electronic trading platform for fixed interest and currency products in Hong Kong to improve the efficiency of bond trading.
By implementing these strategic directions, the Hong Kong Stock Exchange hopes to attract more long-term global capital, support the development of high-quality enterprises, and promote the internationalization of the RMB, so as to better connect with the needs of China and the world, consolidate and enhance Hong Kong's status as an international financial center, and make due contributions to the country's “15th Five-Year Plan”!