Happy New Year!
I know I’m a little bit late wishing everyone a happy 2018, but we’ve been busy at HKEX preparing to unveil our plans for the year. This year marks the final year of our 2016-2018 Strategic Plan and I have a lot of exciting things to share, but before diving into our initiatives let’s take a moment to reflect on 2017 -- a truly breakthrough year for HKEX in a number of areas.
A look back at 2017
Perhaps the biggest news came towards the end of the year: we announced the conclusions to our consultation paper on listing reform which will usher in the most significant change to Hong Kong’s listing regime since 1993. Hong Kong has collectively decided to take a big step forward as a financial centre and welcome innovative, new economy companies that use non-standard share structures and pre-revenue companies from the biotech sector. The market had vigorously debated the topic but we are glad that we have come forward together on a path that will ultimately underscore Hong Kong’s attractiveness as a capital raising centre for a new generation of companies. We expect companies from the new economy to begin applying for listing under the new rules by the end of June this year.
We strengthened the Connect programme last year as well, by extending it into a new asset class: bonds. The Northbound channel under Bond Connect will have a far-reaching impact on the orderly opening of Mainland China’s capital market and the internationalisation of the RMB.
On the fixed-rate and currency side, our turnover of RMB Currency Futures continued to increase, which helped pave the way for the launch of RMB Currency Options. This puts more tools in the hands of investors for hedging RMB exchange rate risk.
In commodities, we launched the first dual-currency and physically-settled gold futures contracts in Hong Kong alongside the launch of our first ferrous metals product, iron ore futures. The commercialisation of the London Metal Exchange is basically complete and we remain focused on launching our spot trading platform in the Mainland, the Qianhai Mercantile Exchange.
Actually, there are too many things to list in this blog! Cumulatively, the efforts of the entire market over the past few years was reflected in the market performance of 2017: the average daily turnover in our securities market reached HK$88 billion, an increase of over 30 per cent from 2016. The average daily volume of our derivatives market hit a new high of 873,000 contracts, with the momentum sustained into 2018: so far in January derivatives trading volume has passed one million contracts in 11 of the first 16 trading days. The Hong Kong market’s total market cap sat at HK$34 trillion, a record high, at the end of 2017 and it has crossed over HK$36 trillion for the first time last week.
Stock Connect has continued to grow as well. The total volume of Northbound transactions to Shanghai and Shenzhen reached RMB2.266 trillion, up 194 per cent over the same period last year and demonstrating international investor appetite for A shares. Southbound transactions from those two cities to Hong Kong hit HK$2.259 trillion, up 170 per cent over 2016. The benefits of the scheme are being shared by all three exchanges, with net inflows of RMB200 billion Northbound and HK$340 billion Southbound. International and Hong Kong investors now cumulatively hold nearly RMB600 billion in A shares, while Mainland investors hold over HK$1 trillion in stocks listed in Hong Kong via Stock Connect.
Motivation for success
The green shoots of success we witnessed last year were not because of work we did in 2017 – the work began much earlier, and that work involved strong support from the market. Our predecessors laid the groundwork for us to take the mantle, and they instilled in us the courage and foresight to work on programmes like Connect, listing reform and the launch of new asset classes.
Our media lunch in 2016 was the first time we put our connectivity plans into words: to connect China with the world and reshape the global market landscape. It has been our primary goal to be the first choice for Mainland investors seeking international diversification and international investors seeking exposure to China. We have been consumed with this goal over the past two years, and are working diligently to continue improving the Connect scheme by expanding it and including other asset classes. At the same time, we want to make sure Hong Kong has products that are attractive to investors everywhere, which is why we have undertaken listing reform and aim to enrich our product offering across the major asset classes of equities, commodities, fixed income and currency. We must be proactive and anticipate the changing needs of the market.
Two years have passed since we unveiled our Strategic Plan, and many of our objectives have been achieved -- but not all. It’s easy to focus on the successes, but we know some challenges remain ahead of us, particularly in the commodities sector.
We have embarked on a difficult path to strengthen Hong Kong’s traditionally robust equities business while growing into new asset classes that make HKEX, and the Hong Kong financial market in general, more diversified and resilient, and more prosperous in the long term. This task can’t be completed overnight, or even in a year or two – it takes time.
Looking to the future
The emergence of the new economy, particularly in Mainland China, is a fantastic catalyst for us to take a closer look at our business and see if we’re as competitive and attractive as we can be. We need to look at Connect to make sure we are continuing to work with regulators and our Mainland counterparts to nurture and grow the scheme. We have already begun laying the groundwork for new products in new asset classes that appeal to investors in Mainland China and around the world. Diversifying our market will ensure our business is less susceptible to factors beyond our control, like market sentiment and trading volumes.
If we continue to persevere and work hard in cooperation with the market, I believe that over time Hong Kong will reap the benefits of being a comprehensive financial centre across asset classes and with groundbreaking, innovative connections and access to Mainland China. If we don’t try, we’ll never reach our goal!
In 2018, we will continue doing our best to plant the seeds of growth for tomorrow and make our business as diverse and resilient as we can.
It is an exciting time. We are starting to see some of our efforts bear fruit, which is an indication that we mustn’t stop pushing forward and strengthening our market. Our team at HKEX will continue working hard in 2018 and beyond to ensure we can have a reliable, bountiful harvest in the years to come.
Share your thoughts on Charles Li Direct with us. Email: firstname.lastname@example.org. All emails sent to this address will be read, however, due to time constraints, the chief executive will be unable to respond personally to every email. If you have general enquiries or comments about HKEX, its products or services, please contact us through one of our usual channels. Thank you!