The Hong Kong stock exchange is one of the major global stock exchanges and a gateway for international investors to access Chinese stocks. It provides various investment opportunities such as IPOs, stocks, derivatives and bonds. With the implementation of stock connect programs between Hong Kong, Shanghai and Shenzhen, investors can conveniently trade cross-boundary stocks. This article will give an overview of the Hong Kong stock exchange and explore different approaches for investors to allocate capital into this market.
Hong Kong excels in IPO fundraising with many new economy listings
According to the data, Hong Kong ranked second globally in IPO fundraising in 2020, raising $400.2 billion across 154 IPOs. Many of these were new economy companies in sectors like biotech and technology. For instance, JD.com and NetEase completed their secondary listings in Hong Kong in 2020, raising $35 billion and $24 billion respectively. The IPO pipeline remains strong going into 2021. For investors, Hong Kong provides opportunities to invest in high-growth new economy stocks through IPOs.
Robust secondary market turnover driven by stock connect
In addition to the primary market, Hong Kong also has an active secondary market. The implementation of Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect programs has facilitated cross-boundary investment flows. For instance, as of end 2020, the total Northbound turnover through stock connect exceeded RMB40 trillion. With expanding quotas and new types of securities becoming eligible, stock connect trading volume is likely to keep rising. This provides great liquidity for investors in Hong Kong stocks.
Gaining China exposure through Bond Connect
For fixed-income investors, Hong Kong also provides access to China’s bond market through Bond Connect. By end of 2020, Bond Connect recorded RMB1.2 trillion of total net inflows with over 2000 global investors participating. With index inclusions and more product enhancements, Bond Connect is likely to see continued growth. It allows international investors to add Chinese bonds conveniently to their portfolio for yield and diversification.
Other China access programs like Qianhai Mercantile Exchange
Apart from stock and bond connect schemes, Hong Kong stock exchange also partners with mainland China through other programs. For example, Qianhai Mercantile Exchange (QME) has expanded from metals to new products like natural gas and cement futures. As Hong Kong exchange becomes a shareholder of Guangzhou Futures Exchange, it is committed to strengthen its China connectivity. For investors, these provide more tools to participate in China’s capital markets.
In summary, Hong Kong stock exchange provides diverse investment opportunities into new economy stocks, liquid secondary market, China bonds and other access vehicles. For global investors seeking China exposure, allocating capital into Hong Kong market can be an convenient approach.