Why do companies plan to go public in Hong Kong? 4 Questions on China Stocks “Back to Hong Kong Tide”
Although companies such as NetEase and Ctrip declined to comment, the upsurge in the eyes of the outside world is unstoppable.
After Alibaba, the team returning to the Hong Kong stock market to dig for gold continued to grow in various rumors. Although NetEase, Ctrip and other companies did not comment on this, in the eyes of the outside world, this wave is unstoppable.
There are predictions that Alibaba, which has been listed in the US for five years, has moved to Hong Kong, China. Affected by this, from the beginning of this year, Chinese stocks will be listed in Hong Kong. As for why Chinese stock companies have shown great interest in returning to Hong Kong for a secondary listing, experts believe that the US technology industry has been relatively developed, and many Chinese stocks have previously gone to the US for financing. However, in recent years, a number of technology companies from the mainland have been listed in Hong Kong, and there are a number of local investors who understand them. The secondary listing in Hong Kong, if it can access the Shanghai-Shenzhen-Hong Kong Stock Connect in the future, will play a very important role in attracting mainland capital investment. In addition, the multiple listings of major Internet companies can not only broaden the company’s financing channels, but also hedge some macro risks. Zh
Why are Chinese stock companies willing to return to Hong Kong for listing?
Lin Zijun:On the one hand, although the US monetary policy is still accommodative and US stocks continue to hit new highs, the possibility of a short-term crash is not high. However, there are more and more signals that the valuation of US stocks indicates that it is not “cheap.” In addition to the frequent changes in the Trump administration ’s China policy, driven by the accumulation of anti-hunger, it is not a bad thing for companies to develop an additional financing channel. More importantly, in recent years, Google and Facebook have been contradicted by the judiciary and the public because of privacy issues. Listing in Hong Kong is also a dual insurance arrangement.
On the other hand, Hong Kong, as the most important window for the Mainland to open to the outside world, currently has a very important value and strategic positioning in the Hong Kong stock market. It is very unlikely that it will be surpassed by other Mainland cities or Macau in a short period of time. At the same time, Hong Kong is also one of the largest markets for new equity financing in the world, which can meet the financing needs of large enterprises.
In addition, a secondary listing in Hong Kong, if it can enter the Shanghai-Shenzhen-Hong Kong Stock Connect in the future, will play a very important role in attracting investment from the Mainland. Compared with the direct return to the A-share listing, Hong Kong has a precedent and a near-term listing as a secondary market, with low costs, simple operation, and reduced adjustments to the company’s legal structure and accounting standards.
Cen Sai Indium:Good companies can mix well no matter which capital market they are in, and the fundamentals are hard enough, so they are not afraid of market disapproval. Not to mention the big Internet companies want to go to the Hong Kong Stock Exchange. Multiple listings can not only broaden the company’s financing channels, but also hedge some macro risks. The Hong Kong Stock Exchange is the most open capital market in China. It is also expected that China Stocks wants to list on this secondary market.
Chen Kaifeng:There are many reasons why Chinese stock companies are interested in the secondary listing in Hong Kong. This is partly because some Chinese stocks have relatively low stock prices, investors are unfamiliar with their business, and have less liquidity. If these Chinese stocks are listed in Hong Kong, they can obtain additional liquidity. After all, Hong Kong is closer to the mainland. Investors have a better understanding of the Chinese economy and are more interested in investing in these companies. Enterprises can expand their shareholder base. This is an important reason.
In the past few years, a large number of Chinese stocks were listed in the United States, and some of them did not perform well.
At this point in time, everyone sees that Alibaba’s secondary listing is doing very well, and it will drive other Chinese stocks to catch up with this trend. In the past year, the Sino-US trade talks have had an impact on many Chinese stocks.
Cen Zhiyong:Alibaba’s secondary listing from US stocks in Hong Kong has indeed played a strong role as a model. Because not all Chinese stocks listed in the United States may have a good trading volume. The US technology industry has been relatively developed, and many Chinese stocks have previously gone to the US for financing. However, in recent years, a number of technology companies from the mainland have been listed in Hong Kong, and there are also a number of investors who know them in Hong Kong.
Enterprises with different rights in the same shares, such as Xiaomi and Meituan, were included in the Hong Kong Stock Connect after half a year of listing in Hong Kong. After joining the Hong Kong Stock Connect, mainland investors have formal channels to invest in these enterprises, and these mainland investors are very familiar with their brands and businesses. It is actually more difficult for these investors to exchange their RMB into US dollars and invest in US stocks.
What challenges will the secondary listing bring to the company?
Lin Zijun:One is the challenge of compliance, especially the increasingly stringent regulatory agencies; the other is the challenge of maintaining investor relations, because the attributes of investors in the United States and Hong Kong (especially if they enter the Shanghai-Shenzhen-Hong Kong Stock Connect in the future) are very different.
Although Alibaba’s selection of Hong Kong as a secondary market has performed very well, the increase in trading volume and stock price has proved investors’ recognition of the company. But the inevitable problem is that if the company itself is not good or not favored by investors, it will face the problem of poor liquidity. At the same time, companies are also subject to scrutiny by US and Hong Kong regulators, so corporate actions, especially compliance, face greater challenges. Taking a step back, choosing whether to return to A-shares or Hong Kong as a secondary market is actually a strategic decision. If a company ultimately wants to return to A-shares, then it will have a heavy emphasis on the structure of Hong Kong listing, and the cost of exiting in the future will be greater.
Cen Sai Indium:Listing in both places means that listed companies must not only comply with the laws and regulations of the US Securities and Exchange Commission, but also meet the requirements of the Hong Kong Securities and Futures Commission. However, even if the requirements of the CSRC differ in details, the essence is to better balance the relationship between listed companies and investors. As long as we grasp the essence, do a good job of information disclosure, and conduct lawfully and compliantly, we can cope with it wherever we are.
As a well-known Internet company, if Baidu chooses to go to Hong Kong for a secondary listing, if successful, it can raise a large amount of funds from the market for the company’s future development, and also expand the company’s future financing channels, enabling multi-market financing. On the other hand, the listing of returning Hong Kong stocks will attract market capital to pay attention to the company. If the company is just undervalued at this time, then the situation of strong market attention will be conducive to the repair of the company’s valuation.
Chen Kaifeng:The first is the issue of currency. The United States and Hong Kong conduct transactions in two different currencies, the US dollar and the Hong Kong dollar, and the management of the enterprise during the transaction is a big problem. Second, the costs of listing and listing in both places are quite high.
Cen Zhiyong:The cost of listing in the two places must be relatively high. At a minimum, listing in the United States and Hong Kong requires payment of the corresponding listing fees and professional services fees, which is an expense for listed companies. At the same time, as more and more technology companies come to Hong Kong for listing or secondary listing, but investors’ funds are limited, competition among enterprises will also become more intense. If everyone invests money in popular companies like Alibaba, then the funds that can be invested in other China stocks will also decrease accordingly.
What new opportunities will there be for Mainland and Hong Kong investors?
Lin Zijun:On the one hand, some fund managers may not necessarily invest in such stocks or occupy a small proportion because of the time difference. Selecting a Hong Kong listing can basically cover the investment time cycle of most cities and countries in Asia, in other words, it provides opportunities and operability to participate in this type of stock.
For mainland investors, entering and leaving Hong Kong is much simpler than going to the United States. Account opening and transaction costs can be significantly reduced. If the Hong Kong Stock Connect is opened, it can directly solve the problem of entry and exit of funds and participate in the investment of companies related to the life of the mainland people . At the same time, companies such as Alibaba, JD.com, and Ctrip have rich derivatives in addition to stocks, so they can bring trading in the derivatives market to the Hong Kong Stock Exchange. For professional institutions, A variety of suitable hedging strategy tools can be found.
However, investors should note that the Hong Kong market is an institution-dominated market, and the risk of pure speculation is very high. You can refer to the positions and valuation analysis of professional institutions.
Chen Kaifeng:Mainland investors can participate in the investment of Hong Kong stocks if they have an account in Hong Kong. If these enterprises can join the Shanghai-Shenzhen-Hong Kong Stock Connect in the future, RMB investors in the Mainland can also participate in the form of Shanghai-Shenzhen-Hong Kong Stock Connect. This will definitely be more convenient for investors.
In addition, companies can pay dividends, share dividends, and buy back stocks to take measures that are friendly to investors. But in the final analysis, the core issue is to make good performance.
Cen Zhiyong:Chinese secondary stock companies have more options for investors when they come to Hong Kong for a secondary listing. I believe that Alibaba will have the opportunity to be included in the Hong Kong Stock Connect after half a year of listing, so that mainland investors will also have formal channels to invest in these technology companies from the Mainland.
Hong Kong will become the main place for new economy companies to list?
Lin Zijun:I think it is possible that the Hong Kong market will become more and more liquid as more and more Asian investors, especially Hong Kong investors, become aware of Mainland new economy companies. But the choice of Hong Kong still depends on the choice of the United States. Which side is cheaper, which side is easier to raise money, which side is easier, especially the restrictions on regulatory policies. With the opening of the Hong Kong Stock Exchange with different rights on the same shares and non-profit listing, the policy trend is relaxed. In conjunction with the opening of the Hong Kong Stock Connect channel, I believe that the future of Hong Kong listing will become more attractive.
Chen Kaifeng:It is unclear whether Hong Kong stocks can become the main destination for listing of new economic enterprises in the Mainland. After all, the Hong Kong market still has certain limitations in liquidity, and many stocks have very little trading volume.
The current structure of Hong Kong stocks is not very reasonable, and the proportion of financial companies is too high. In the past few years, the overall performance of Hong Kong stocks is not very good. The performance of the index is not as good as that of A shares or US stocks. It has a lot to do with this issue. The introduction of more new technology stocks is a very good thing for Hong Kong stocks, otherwise Hong Kong stocks may slowly fall behind, or even fall further and further. The Hong Kong market really needs these emerging companies to inject some vitality.
Beijing News reporter Xu Nuo Liang Chen Lu Yifu Editor Wang Jinyu Proofreading Liu Yue