Over recent years, companies from ASEAN member states have flocked to Hong Kong to list themselves and raise funds, helping to drive increasing diversification in the Hong Kong stock market. But how has Hong Kong managed to attract such companies and become to be viewed as the first choice for overseas stock market listings? How close are economic and trade links between Hong Kong and the ASEAN countries? How will this trend bring about more opportunities for both parties?
Stephen Phillips: Hong Kong Assists ASEAN Companies Developing Global Services
The ASEAN countries are home over 649 million people, with a rapidly-growing middle class that is estimated to account for a quarter of the total population, so the enormous development potential and capital needs of the region are readily apparent.
The ASEAN economies have generally seen burgeoning growth over the last few years, and there has been a marked increase in listing and financing activity. Stephen Phillips, Director of InvestHK, stressed that Hong Kong’s position as a centre for international commercial finance is key to its continuing ability to attract businesses from ASEAN nations.
The ASEAN region has become Hong Kong’s second largest trade partner
Hong Kong is the sixth largest commodity trade partner for the ASEAN region, while the ASEAN region is the second largest trade partner for Hong Kong after mainland China. In 2018, commodity trade between Hong Kong and ASEAN nations accounted for 12% of Hong Kong’s global commodity trade, with the value of Hong Kong-ASEAN commodity trade increasing by an average of 6.7% per year between 2014 and 2018, while Hong Kong is the sixth largest export market for the ASEAN economic region, accounting for 7% of ASEAN exports.
InvestHK is committed to helping companies of every kind to start and develop business in Hong Kong. Phillips revealed that InvestHK helped a total of 487 companies to start or expand their business in Hong Kong during 2019, with 29 of these companies originating from the ASEAN region, making ASEAN countries the fourth most common place of origin for companies served by InvestHK.
He also noted that the ASEAN region was Hong Kong’s sixth biggest source of external investment as of the end of 2017, with foreign direct investment from ASEAN nations reaching HKD628 billion, equivalent to 4.1% of total foreign direct investment in Hong Kong.
Two major agreements provide favourable guarantees
In order to provide companies with clearer and more specific business regulations and strengthen economic cooperation between the two regions, ASEAN signed two agreements with Hong Kong - the Free Trade Agreement and the Investment Agreement - covering six different sectors.
The Free Trade Agreement provides legal guarantees and better market entry approval conditions covering Hong Kong’s goods trade, services trade and investment protections, lowering the entry threshold for businesspeople, expanding business opportunities, and creating a more favourable environment for Hong Kong’s economic development. Beneficiaries of this agreement include industries in which Hong Kong has traditional strengths, as well as industries that have potential for further development. The Investment Agreement delivers fair and equal treatment for Hong Kong-based companies investing in ASEAN member states, provides investment entities with protections and safeguards, and establishes commitments to the free transfer of investment and profits.
Leveraging Hong Kong’s strengths in the Mainland market
Phillips explained that Hong Kong has served as a gateway to China for many years and has become the destination of choice for companies from ASEAN nations looking to establish regional headquarters. As the ASEAN region’s economy has continued to develop at a steady pace, companies are becoming increasingly mature and need to expand their businesses across Asia and into other global markets. They are therefore able to make use of Hong Kong’s numerous advantages to develop the Mainland market.
Phillips explained that Hong Kong plays an important role in the “Belt and Road Initiative”, enabling ASEAN-based companies to use Hong Kong’s efficient and well-regulated stock market to raise capital and fundraise for their projects. Hong Kong’s professional services sector is also home to a wealth of talent that is ready to cater to their business needs in every part of the world. If an ASEAN-based company wants to expand its business into Asia and other parts of the world, Hong Kong’s unique international business platforms are an essential choice.
Hong Kong has also signed the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA) with the mainland Chinese government. CEPA not only promotes free trade in goods and services, but also has benefits for investment. This also benefits ASEAN-based companies that use Hong Kong as a base, helping them to develop their business in the world’s largest emerging market - China. Looking to the future, Phillips believes that as the economies of ASEAN, China and Hong Kong continue to develop the prospects for economic and trade cooperation will become even broader.
Wong Sze-wah: The International Nature of Hong Kong’s Investment Market is a Great Strength
Wong Sze-wah, Economist of the Bank of China Hong Kong Financial Research Institute, reflected that when economic recoveries began to take shape in 2017, companies had an essentially positive outlook on the economy. This stimulated a continued upturn in investor confidence and drove a rise in IPO activity, and has become the key factor attracting ASEAN-based companies to list in Hong Kong.
Hong Kong’s powerful fundraising capabilities lead Asia
Wong commented that the intensifying volatility in global financial markets caused investor sentiment to turn cautious and limited companies’ willingness to raise funds on capital markets, resulting in a drop in both the number of IPOs and the amounts raised by ASEAN-based companies in Hong Kong. He added that global funds began once again to move into riskier assets and emerging markets in 2019, with the result that ASEAN economies were still able to maintain steady growth in spite of the need for reductions on the periphery, and the trend of ASEAN-based companies listing on the Hong Kong stock exchange began to accelerate again.
Wong believes that Hong Kong has the combination of a sound financial infrastructure, fair legal system, and comprehensive professional services, and its capital markets lead those of other major stock exchanges in the region in terms of both average daily trading amounts and fundraising capabilities; this reflects Hong Kong’s advantages in terms of both the depth and breadth of its overall market flow, and offers favourable conditions for companies engaging in refinancing activities after a stock market listing, as well as in other areas such as improving financial management.
Stringent regulation ensures integrity
Wong continued by noting that Hong Kong’s financial markets incorporate non-local investors from China, the US, and the UK and other parts of Europe, enabling ASEAN-based companies to access institutional investors from around the world through the local capital markets, so that they can attract international capital and establish a broader investor base.
He commented that the maturity of Hong Kong’s market listing regulatory systems and the open and transparent nature of its investment environment mean that ASEAN-based companies that obtain a listed status in Hong Kong are in an excellent position to show investors and clients that their internal management is up to international standards and earn the trust of more overseas customers.
Wong commented that, by the same token, attracting ASEAN-based companies to list in Hong Kong helps Hong Kong to strengthen its position as an international financial centre and become a two-way platform for serving the Mainland and the ASEAN region, a position from which Hong Kong stands to benefit greatly.
Optimising approval processes and making Hong Kong More Attractive for Listings
The ASEAN-based companies that have already listed in Hong Kong markets mainly hail from Singapore and Malaysia, and have opted for main board listings. However, Wong indicated that the business structures of the relevant companies are increasingly diverse.
Wong also believes that some of the larger ASEAN-based companies already listed on Hong Kong markets have a high-quality portfolio of branch organizations that Hong Kong could promote itself to more heavily, with the goal of enticing such companies to spin off the relevant businesses or assets and list them separately on Hong Kong markets. He is convinced that the ASEAN economies will continue to see rapid growth over the longer term, and he predicted that more ASEAN-based companies will make use of Hong Kong’s capital markets to raise funds for IPOs.
