In the light of recent events, the management of SPb-Exchange has intensified its work to ensure access of its clients to the securities of issuers from the Hong Kong Exchange. We decided to make for our readers a small reference about the Hong Kong Stock Exchange.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
Important: status of Hong Kong
Hong Kong was a British colony until 1997, and it was given to Communist China under the honest word not to violate the autonomy of this city within China until 2047.
Therefore, in fact, Hong Kong is now a state within a state with a lot of differences from mainland China in legal and political terms..
By the way,, even before the coronavirus crisis, mainland Chinese citizens could not travel to Hong Kong without a visa, and in the Hong Kong Police Manual, dispersing protesters back in 2019, there were many British police chiefs. Many U.S. companies and agencies often report Hong Kong as a separate country..
Hong Kong is somewhat more like the UK, than on the PRC, including in the field of legislation. Therefore, the island is an important financial center.: differences in rules and regulations make the placement of shares on the Hong Kong Stock Exchange easier, than on the exchanges of mainland China.
Also important, that Hong Kong, through the efforts of British PR specialists, has gained fame as an investor-friendly place for many decades of British rule., so by inertia, even Chinese companies are trying to hold AN IPO in Hong Kong as much as possible.. In a sense, it's a blessing.: shanghai and shenzhen sites are already surpassing the Hong Kong stock exchange in terms of capitalization.
Capitalization
It is one of the three largest exchanges in China. At the time of writing, the market capitalization of all companies, traded on this site, is HK$38.562 trillion (HKD) — this is about 4 trillion ordinary dollars at the exchange rate for 16.06.2022. For comparison: capitalization of the Russian stock market in dollars — 730.5 billion, and the capitalization of the US stock market is slightly less than 50 trillion.
Capitalization of world exchanges as of March 2022, trillion dollars
| NYSE, USA | 27,21 |
| NASDAQ, USA | 22,42 |
| Shanghai Stock Exchange, China | 7,37 |
| Euronext, Europe | 6,66 |
| Japan Exchange Group, Japan | 6 |
| Shenzhen Stock Exchange, China | 5,33 |
| Hong Kong Exchanges, Hong Kong | 4,97 |
| LSE Group, United Kingdom | 3,57 |
| National Stock Exchange of India, India | 3,45 |
| TMX Group, Canada | 3,41 |
27,21
How many companies
In May 2022, there were 2,218 thousand companies on the exchange. That's half as much., than in the USA, but much more, than in Russia.
What's out there?. Part of issuers, traded on the Hong Kong Stock Exchange, we are already familiar: their ADR receipts are traded on American exchanges and are available on the SPb-Exchange. This, for example, NetEase.
10 the largest issuers of the Hong Kong Stock Exchange, million Hong Kong dollars
| Ticker | Name | Market capitalization | Share of the capitalization of the entire exchange | |
|---|---|---|---|---|
| 1 | 700 | Tencent Holdings | 3 483 383,87 | 9,22% |
| 2 | 9988 | Alibaba Group Holding, SW | 2 087 403,51 | 5,52% |
| 3 | 939 | China Construction Bank Corporation, H Shares | 1 404 037,15 | 3,71% |
| 4 | 3690 | Meituan, W | 1 156 361,52 | 3,06% |
| 5 | 941 | China Mobile | 1 082 027,18 | 2,86% |
| 6 | 5 | HSBC Holdings | 1 064 333,81 | 2,82% |
| 7 | 1299 | AIA Group | 974 437,01 | 2,58% |
| 8 | 9618 | JD.com, SW | 714 003,80 | 1,89% |
| 9 | 9999 | NetEase, S | 588 060,99 | 1,56% |
| 10 | 883 | CNOOC | 554 521,40 | 1,47% |
But, in my opinion, the most interesting issuers of this exchange are not on the "SPb-exchange":
- Tencent is a Chinese technology and media holding.
- AIA Group is a financial company.
- Xiaomi is a manufacturer of consumer electronics.
- China Mobile, a telecommunications giant.
- Meituan – a platform for online commerce.
The Hong Kong Exchange itself is also traded on the stock exchange - on its own platform.
Even Hong Kong has its own ETF, investing as in the indices of this exchange, as well as in Chinese and Asian indices of Western compilers, there are shares of some American companies such as Microsoft.
Indexes
There are four main indices of the Hong Kong Stock Exchange, which investors can focus on. The Chinese themselves call Hong Kong "Hong Kong". Therefore, the official indices are called in the Chinese manner Hang Seng.
Hang Seng Index (HSI) - Main Index of the Hong Kong Stock Exchange, including 66 the largest and most liquid issuers.
Industry components of HSI
| Percentage in the index | Number of issuers | |
|---|---|---|
| Finance | 37,21% | 11 |
| IT | 25,84% | 7 |
| Consumer goods | 8,94% | 10 |
| Property and construction | 8,05% | 12 |
| Housing and communal services | 3,86% | 5 |
| Groceries | 3,40% | 3 |
| Energy | 3,29% | 6 |
| healthcare | 2,99% | 4 |
| Telecommunications | 2,82% | 2 |
| Conglomerates | 1,80% | 2 |
| Industry | 1,80% | 4 |
| Materials (edit) | 0,00% | 0 |
Hang Seng Composite Index (HSCI) - Another representative index of the Hong Kong Stock Exchange, covering 95% market capitalization of the largest companies of the exchange. There are a total of 516 companies there. Unlike HSI, not only large-cap companies are represented here, but also with small and medium.
Industry components of HSCI
| Percentage in the index | Number of issuers | |
|---|---|---|
| Finance | 28,99% | 52 |
| IT | 24,85% | 49 |
| Consumer goods | 10,46% | 94 |
| Property and construction | 9,21% | 99 |
| Housing and communal services | 5,03% | 75 |
| Groceries | 4,59% | 27 |
| Energy | 4,37% | 41 |
| healthcare | 3,50% | 28 |
| Telecommunications | 3,35% | 12 |
| Conglomerates | 2,68% | 9 |
| Industry | 1,53% | 7 |
| Materials (edit) | 1,42% | 23 |
Hang Seng China Enterprises Index (HSCEI) - Hong Kong Exchange Companies Index originally from mainland China. Total in it 50 companies.
Industry components of HSCEI
| Percentage in the index | Number of issuers | |
|---|---|---|
| Finance | 36,06% | 9 |
| IT | 28,09% | 10 |
| Consumer goods | 9,39% | 6 |
| Property and construction | 5,26% | 6 |
| Housing and communal services | 4,24% | 4 |
| Groceries | 4,23% | 2 |
| Energy | 4,19% | 1 |
| healthcare | 3,35% | 6 |
| Telecommunications | 2,56% | 3 |
| Conglomerates | 1,75% | 2 |
| Industry | 0,86% | 1 |
| Materials (edit) | 0,00% | 0 |
Hang Seng TECH Index (HSTECH) is an index from 30 of the largest technology companies, traded on the Hong Kong Stock Exchange. By the way,, there aren't just pure IT issuers, but also companies from other sectors, indirectly related to the technology sector: for example, manufacturer of electric cars Li Auto.
HSTECH Industry Components
| Percentage in the index | Number of issuers | |
|---|---|---|
| Finance | 77,63% | 19 |
| IT | 8,73% | 5 |
| Consumer goods | 6,82% | 2 |
| Property and construction | 5,55% | 3 |
| Housing and communal services | 1,26% | 1 |
| Groceries | 0,00% | 0 |
| Energy | 0,00% | 0 |
| healthcare | 0,00% | 0 |
| Telecommunications | 0,00% | 0 |
| Conglomerates | 0,00% | 0 |
| Industry | 0,00% | 0 |
| Materials (edit) | 0,00% | 0 |
There are also smaller sectoral indices, consisting of industry issuers HSCI and HSI. Hong Kong ETFs are largely focused on these indices.
Risks
Now the plot is developing with the construction of a vertical of power in Hong Kong, similar to, what already exists in mainland China, And, Consequently, squeezing political and legal freedoms.
Purely economic risks for companies, listed on the Hong Kong Stock Exchange, so far seem very insignificant. Coronacrisis disruptions in business activity are a much more serious problem. Hong Kong business is not yet suffering from political reforms. Maybe, in the future, the exodus of companies from the island will begin due to political changes, but it's too early to tell..
A much more significant problem may be the non-recognition of these changes by the international community and the imposition of Hong Kong-related sanctions on China.. May well get to that point., that U.S. and European regulators will terrorize companies with residence permits in Hong Kong on the grounds that, that "Beijing violates hong kong's special status agreements, and therefore placing your shares there and doing business is unacceptable.".
Pros
Hong Kong is perceived by many in the PRC and beyond as China's window to the world and a key financial center..
In light of this, it is very possible, that the exodus of Chinese companies from U.S. exchanges could lead to the filling of the Hong Kong Exchange with new issuers and investors..
Also in favor of the Hong Kong Stock Exchange is the creation of the "GreatEr Bay" zone., which will contribute to the integration of a number of economically developed areas of the PRC, including Hong Kong with a total population of over 86 million, – directly or indirectly, this can also contribute to the inflow of money and companies to the Hong Kong stock exchange. Probably, upon reaching maturity, the most promising companies in this mega-agglomeration will choose the Hong Kong exchange.
It is also worth considering the disproportionately large role of Hong Kong in domestic chinese politics.: the placement of shares of a Chinese state-owned company in Hong Kong greatly increases the chances of the heads of these enterprises for political advancement.. It seems to me, even in the case of China's increasing isolation, this factor will play to the benefit of the Hong Kong Stock Exchange..
Conclusion
Russian stock market is a dreary swamp, in which nothing happens. That's why, of course, opening russian investors' access to new shares is a plus in itself.
Will hope, that the opening of access to the Hong Kong Stock Exchange will take place this year and that access will be as complete as possible - with all shares and ETFs. And then we can start doing reviews of companies like Tencent..
