If you wanted to foster a ‘quality’ stock market you’d pick only the best companies to list right? In China’s case this would mean the biggest, most profitable and best-connected politically. Researchers Weishi Jia and Grace Pownall from the Emory University in Atlanta and Jingran Zhao from the HK Polytechnic set out to see if this is what China’s domestic stock markets represent.
Their results are music to the ears of A-share skeptics and fans of Hong Kong (like me). What the researchers found was “..the largest and most profitable Chinese firms …prefer to be listed in the Hong Kong capital market.”
The reasons for this are complicated but they do a good job (from P. 15) in highlighting perhaps the most important one; how our listing process in HK runs rings around that oop North.
As a Member of the Listing Committee in Hong Kong I can confirm first hand how efficiently our system operates. We’re fast, scrupulously fair and non-judgemental. If you qualify for listing under the rules, you can list; and that’s it. Compare this system with the one to the North which puts companies in queues in which they can languish for years. Moreover, its highly discriminatory and prone to regular suspension whim. An excellent example of the superiority of rule of law versus law of man.
Is it any wonder therefore that well connected and/or big companies list where they get a fairer shake? Hong Kong has been the top market globally for IPOs by capital raised for the last two years and 2017 is looking to be another great year. We need to constantly work to keep our market competitive (BTW, we don’t need second class shares and I’m only sure we should have a discussion about a turd-board, I’m not convinced of it’s necessity [Shouldn’t that be ‘Third’? Ed.]) but compared to China’s domestic markets we will remain the preferred option for a long time to come.
A lot of things need fixing in Hong Kong; but our stock market and IPO system is some way down the list of what the new Chief Executive and her administration need to busy themselves with.
You can access the report in full via this link Avoiding China’s Capital Market.
Happy Sunday.