HKE&C talks prompt share surge

The exchange company discussing the development of new indexes

HONG KONG - Hong Kong Exchanges & Clearing Ltd (HKE&C) , the most valuable exchange company, said it's in venture talks with China's two stock exchanges. The announcement came a day after Vice-Premier Li Keqiang unveiled plans to boost cross-border investment. Shares of Hong Kong Exchanges & Clearing jumped the most in two years.

The company is discussing the development of new indices and other derivative products with the Shanghai and Shenzhen bourses, Hong Kong Exchanges said in a statement on Thursday.

The venture may be based in the former British colony, it said.

China will start an exchange-traded fund (ETF) linked to Hong Kong equities and boost quotas from qualified companies to invest in its own share market, said Li, on a visit to Hong Kong on Wednesday.

The bourse's Chief Executive Officer Charles Li is forging closer ties with the mainland and hopes to attract the country's investors. The exchange hosted the first yuan-denominated initial public offering outside China this year and is preparing for dual-currency listings to take advantage of Beijing's plans for financial liberalization and its promotion of the yuan in global trade and investment.

'Right direction'

"This is going in the right direction for both the Chinese mainland and Hong Kong - for the Chinese mainland to open itself, and also for Hong Kong to get more business and money flow from mainland investors," said Alex Au, managing director of Richland Capital Management Ltd in Hong Kong. If the Chinese mainland government believes the ETF product is "successful and within their control, they can roll out this product into broader areas, and eventually to other countries' stocks as well".

No binding agreement has been reached, the Hong Kong bourse said. Shanghai Stock Exchange spokesman Chen Ji declined to comment. Officials at the Shenzhen Stock Exchange couldn't immediately be reached for comment.

"Hong Kong Exchanges doesn't have further details now as the discussion has just begun," said Scott Sapp, a company spokesman.

The Chinese bourses together make up the second-largest equity market in terms of market capitalization, while Hong Kong ranks fifth, according to data compiled by Bloomberg.

Qualified investors

China's government places quotas on foreign ownership of equities listed in the country and also on the amount domestic fund managers are allowed to invest offshore. The allowances are only available to qualified institutional investors.

The country is working on a program to allow financial companies in Hong Kong to offer yuan funds that will invest in mainland stocks, Wang Lin, director-general of the department of fund supervision at the China Securities Regulatory Commission, said in May.

"I suspect that the announcement ties in with the measures announced by Vice-Premier Li on Wednesday about the launch of the ETF linked to Hong Kong stocks," said Alexander Lee, an analyst at DBS Vickers Hong Kong Ltd, who has a "hold" rating on the Hong Kong Exchanges. "For such an arrangement to work, the two parties need to come together. I don't foresee any issues on both fronts and on the regulatory side as all parties want to push in the same direction."

Bloomberg News

(China Daily 08/19/2011 page17)