Stock exchanges themselves rather than stock-market movements are the story in Asia today.
The operator of the Hong Kong stock market is reporting record profits on Wednesday, flush with fees from U.S.-listed Chinese companies selling shares in the city. Its strong performance is at odds with a record-bad recession under way here.
A Hong Kong listing paves the way for companies such as Alibaba Group Holding (BABA) , JD.com (JD) and NetEase (NTES) to depart the United States, if the political pressure on Chinese stocks proves too great.
Meanwhile, the Shenzhen Stock Exchange has today confirmed details of its plans to overhaul its Nasdaq-style ChiNext market. The first listings under its new IPO system will start trading on August 24, the stock market said in today's statement.
The Shenzhen stock market is something of a backwater compared to the much-larger market in Shanghai. But Shenzhen is China's answer to Silicon Valley, so ChiNext is perfectly placed to serve as an outlet for tech startups looking to raise public funds.
The ChiNext reforms are based on the new rules implemented by Shanghai's STAR Market (another Nasdaq wannabe) when it launched in July 2019. ChiNext is a decade older, with 833 companies already listed since it opened in 2009, but has lost its way a little. Around 300 companies are thought to be waiting in the wings to go public under the new rules.
ChiNext will now allow prospective listings to get approval solely from the Shenzhen exchange, instead of waiting for lengthy vetting by the stock watchdog, the China Securities Regulatory Commission.
ChiNext stocks will also be allowed to trade without price limits in the first five trading days, then after they fall or rise 20% in a trading session, up from 10% now. Companies will also be allowed to list that have dual share structures, and that haven't yet turned a profit, both changes from the current rules.
Business is booming for Hong Kong Exchanges and Clearing (HKXCY), the for-profit company that operates the markets in Hong Kong. It has posted best-ever figures at a time the vast majority of Hong Kong companies are struggling through recession and under a terrible administration, not to mention the Covid crisis.
Post-tax profits in 1H 2020 rose 1% to a record HK$5.2 billion (US$667 million), on record revenue of HK$8.8 billion (US$1.1 billion) that was up 2% over the same time last year.
The Hong Kong market saw 64 IPOs in the first six months of the year. Total IPO volume of HK$92.8 billion (US$11.8 billion) ranked behind only Nasdaq and Shanghai, largely driven by the June secondaries for JD.com and NetEase, both originally listed on Nasdaq.
The JD.com listing, which raised US$4.4 billion, and the NetEase listing, worth US$3.1 billion, were the second- and third-largest IPOs in the world in the first six months of 2020, behind only the US$4.4 billion listing in Shanghai of the Beijing-Shanghai High Speed Railway (SH:601816).
Of course, they followed the mammoth Hong Kong listing last November of Alibaba Group, with its blockbuster US$12.9 billion secondary. Alibaba's digital-payments affiliate Ant Financial may raise as much as US$10 billion with a likely listing in Hong Kong and maybe Shanghai later this year.
The Hong Kong market has also been given a boost by the growing popularity of the Stock Connect schemes linking Hong Kong to the walled-off markets in Shanghai and Shenzhen. The northbound volumes into China rose 69% to 74.3 billion yuan (US$10.4 billion), while southbound flows soared 86% to HK$20.7 billion (US$2.6 billion).
Northbound investors from Hong Kong are able to tap into the shares of mainland companies that are otherwise impossible for buyers outside China to acquire. Mainland investors, meanwhile, are able to access better-quality and more-internationalized companies listed in Hong Kong, where valuations are cheaper than the momentum-driven mainland stocks.
It's been a stormy time in Hong Kong quite literally today. We had the first major typhoon of the year, with the Typhoon Signal No. 9 raised overnight, causing the start of trading on the all-digital stock market to be delayed until 1:30 p.m.
The arrival of Typhoon Higos caused heated debate about whether Hong Kongers, who are used to being sent home for work if the "T8" signal goes up, get a day off work when they're working from home!
Now the markets in Hong Kong and Shenzhen are back in full swing, they'll continue prep work to attract China- or even Asia-focused companies that otherwise would certainly have made U.S. markets their first port of call.
U.S. Treasury Secretary Steve Mnuchin last week announced that Chinese companies trading shares on U.S. markets will have until the end of 2021 to comply with U.S. accounting standards, or face delisting. Chinese accounting companies have resisted sharing their audits overseas, concerned that they may be sharing "state secrets", a vague term that essentially means anything that the Chinese Communist Party doesn't want you to see.
But a series of accounting scandals, most recently leading to the implosion of Chinese Starbucks imitator Luckin Coffee, has raised the heat for U.S. authorities to safeguard American investors.
I'm not so sure we in Hong Kong or the market operators in Shenzhen should be opening their arms to dodgy Chinese companies looking to raise a quick buck. But high-quality listings like Alibaba and Ant raise the profile of the stock markets in greater China. It looks like more and more large Chinese companies will skip a U.S. listing altogether in the future. That saves the headache of avoiding the latest Chinese fraud, but also makes it hard to participate in China's tech sector, which in some technologies leads the world.