Hong Kong’s financial markets have climbed steadily since the controversial National Security Law was introduced on 30 June, reflecting investor optimism that the city would continue to thrive, despite international condemnation of the bill.
Benchmark stock index Hang Seng Index opened at a five-day high of 25,545.54 today and continued to rise to 26,298.74 by mid-day, marking a sharp 2.95% increase within a few hours.
Investor confidence stems from hopes that the National Security Law will quell pro-democracy protests that have racked the city for months, and bring in additional cash flows from mainland Chinese investors.
The Hong Kong Stock Exchange has benefitted from multiple secondary listings recently, including Chinese e-commerce giant JD.com and Chinese gaming firm Netease, which raised HKD 30 billion (USD 3.9 billion) and HKD 21 billion (USD 2.7 billion) respectively. The move comes after the US passed a bill tightening regulations on foreign companies in late May, which could see major Chinese firms such as Alibaba delisted from US exchanges.
Further IPOs from major Chinese firms are expected to follow, which would strengthen the city’s ties with the mainland. China’s largest fast-food operator Yum China, which runs KFC and Pizza Hut in China, has filed for a USD 2 billion listing, according to Bloomberg, and Chinese search engine Baidu, which has a market capitalisation of USD 42.5 billion on NASDAQ, is also expected to IPO later this year.
Despite the COVID-19 pandemic, which has dampened financial markets globally, investor sentiment in Hong Kong’s market remains relatively strong. “Hong Kong’s capital market has again demonstrated its ability to weather challenges while driving fundraising activity. Although its IPO funds dwindled, its number of new listings was 1st among all stock exchanges in Q1 2020,” Deloitte China Southern Region Managing Partner Edward Au stated in an April report.
The city’s stock exchange is expected to raise up to HKD 220 billion in IPOs by the end of 2020, according to Deloitte predictions, which forecast a robust revival in the second half of the year, provided businesses are able to resume operations. However, it remains to be seen how Hong Kong’s stock exchange, which is valued at USD 4.99 trillion, will fare against Shanghai and Shenzhen’s stock exchanges, with all three vying for major Chinese listings.
The city also faces stiff competition from neighbouring cities and was overtaken by Tokyo, Shanghai, and Singapore earlier this year in the Global Financial Centres Index (GFCI) report, dropping to 6th place globally.