Hong Kong Exchanges and Clearing (HKEX) CEO Bonnie Y Chan is on the show this week. She offers us insights into how Hong Kong can continue to be a dynamic and attractive destination for investors and issuers worldwide.
Check out the full transcript of TVB’s Straight Talk host Dr Eugene Chan’s interview with Bonnie Chan:
Eugene: Good evening, and welcome to Straight Talk! I'm Eugene Chan, and our guest this evening is Bonnie Chan, the chief executive officer of the Hong Kong Exchanges and Clearing Limited (HKEX) to share with us what makes Hong Kong an attractive place for investors and issuers. Appointed in March this year, Chan brings over 30 years of leadership and expertise in global capital markets. She has transitioned from her previous role as co-chief operating officer of the group, and has played a leading role in transforming Hong Kong-listed market, enhancing its quality, attractiveness and efficiency, positioning HKEX as a leading global exchange. She is also a frequent contributor to the World Economic Forum, and has served on various influential boards and committees in both the legal and financial sectors in Hong Kong. Bonnie holds degrees from the University of Hong Kong and Harvard Law School, and was recently recognized as one of the world's Federation of Exchanges women leaders. Welcome, Bonnie!
Bonnie: Thank you, Eugene!
Eugene: After a very thorough introduction, I'm sure the viewers will know that we are in good hands and we must congratulate you on being the first female CEO of HKEX. So, it has been like six months since you have taken the helm of the group. What are the sort of strategic directions you wanted to bring to this important organization?
Bonnie: Right. Well, first of all, thank you so much for having me, Eugene, on your program. Indeed, it has been six months since I have become the CEO of HKEX, and I have been busy working on the strategic directions. I think I will name the highlights. First of all, we're very conscious of the fact that we are in a very unique position being the super connector between the Chinese mainland and the rest of the world. And therefore, the centerpiece of our strategy is really our China strength, how we can do things to ride on this very unique strength of ours and surrounding this very important centerpiece, we have a few what we call strategic pillars. So, the first, and I would say the most important one, is to enhance our market vibrancy. I think you've heard a lot about the liquidity of the Hong Kong market, and you know things that we can do more to enhance that liquidity, which is obviously fundamental to allowing all the business activities to be carried out on our market. So, that's one pillar. The second one is really to make sure that we future proof our technology and operations, because technology or technological changes happen at a very quick pace these days, and therefore we want to make sure that we continuously invest in our technology and upgrade the way we operate our market. And last but not the least, it's really about exploring adjacency. Of course, key to our market and the stock exchange’s business is our cash and derivatives trading, but there are a lot of areas that we feel we can explore, for example, data, trading of carbon credits and virtual assets. These are things which investors these days look to explore ways to diversify their investments. And therefore, I would say, with the centerpiece and these three strategic pillars, that will be the essentials of our strategic direction.
Eugene: Right, Bonnie. We, the Hong Kong people, are very proud of having a strong capital market, because we are amongst the largest globally. And we have positioned well for the last ... I would say, for deal-making and equities over the last 20 years.
Bonnie: Yes.
Eugene: However, given the fragility in the global markets, we have seen this activity kind of slip over in recent years, and especially IPOs in Hong Kong. And Bonnie, you have been in this business even before joining HKEX and you have been a champion in driving market development. What role do you see Hong Kong can still play in capital markets in the coming years?
Bonnie: Yes, indeed, Hong Kong has been very strong over the years. I've been in this business for three decades now, over three decades, and I think the fundamentals continue to be really strong. Now let's talk about IPOs, which are obviously very dear to my heart. Historically, we have made it to number one fundraising center in terms of IPOs for many years, over the last two decades. And you pointed out that position might have slipped in the last few years. I think that's a reflection of many things. We're seeing a lot of headwinds over the last few years, including COVID, which certainly didn't help the high interest rate environment that we are in. Macroeconomics, geopolitical factors – all come into play. However, this is not a phenomenon which is unique to Hong Kong. In fact, if I look around the world, a lot of traditionally strong capital market centers or especially those in the IPO space, have also been affected by this headwind. Maybe I should share with you some of the recent highlights. I think since the second quarter of this year, we saw, actually, IPO activity really picking up quite nicely. Year to date, we've completed 43 IPOs, and that places us in terms of global league table number four, which is quite nice. Now the fundraising, the total fund raised from these 43 IPOs, was not very big, and that's a reflection of the fact that business owners at the current valuation level may not want to issue a big IPO, but that's okay. One thing which I really want to point out is the fact that aside from the IPO, actually Hong Kong is a particularly strong and convenient platform for companies which are listed to carry out follow-on fundraising. So year to date, we have, in fact, completed $21 billion of follow-on capital raising for listed companies. And that goes to show our strength. And we are a platform which companies not only can complete their IPOs, but can really look at as a place where they can continuously tap their market as they develop their business.
Eugene: Right, Bonnie. I understand that we were, I mean, for sure. I mean, we have all been doing well in the IPO. We've always been in the top 10, as you told me earlier, and we were actually number one in 2020.
Bonnie: Yes.
Eugene: Now we're having the best second quarter. Do we have one? Do you see our IPO fundraising going back to past levels? And am I too optimistic at this stage?
Bonnie: I don't think you're too optimistic. I'm also very optimistic. I think it's a matter of the timeframe that we are able to sort of restore, you know, or get ourselves back to the top position. Now and in that regard, I am sure you have heard about the five measures which were announced by the China Securities Regulatory Commission (CSRC) in April. The five measures are there to support Hong Kong as a capital market, global capital markets. One of the five measures, in fact, is to encourage leading companies on the Chinese mainland to come to Hong Kong, to pursue a listing. And therefore, when I look at the mainland economy, there may be, you know, occasional headwinds. The fundamentals are particularly strong. The mainland is still the hub to, I think, the second-largest numbers of unicorns in the world. And those are perfect IPO candidates. So, if you ask me, that is certainly going to help us, you know, climb up further in the league table. But it's not just mainland. Hong Kong is an international financial center as we know it, and our capital-raising platform can support the fundraising of not just mainland companies, but really companies around the world. In particular nowadays, if international companies get their listing in Hong Kong on a primary basis, they will be eligible to stock connect inclusion, and that is unique to Hong Kong.
Eugene: Let me ask you since you mentioned international global companies, anything that you're doing to attract any particularly emerging, innovative sectors?
Bonnie: Yes, many things I would say. First of all, we want to make sure that our listing regime is conducive to allowing these companies to get listed. And we're particularly focused on the technology side, which we believe is where the growth is going to continue to come from. And in that regard, we have recently introduced a new chapter called The Specialist Technology chapter, chapter 18C in our listing rules, which are aimed to attract the most attractive candidates in the technology sector to come and list in Hong Kong. And I'm talking about things which investors are most excited about. You know, artificial intelligence, new energy, new materials, quantum computing. So, first of all, we need to make sure that we have the framework. And then secondly, even though I became the CEO only six months ago, I have been busy travelling around the world, and it's this kind of marketing and engagement with companies around the region first of all and, more broadly, around the world, so that I can really tell them, explain to them the attractions for listing in Hong Kong. And that's very important, and that's also supported by our international footprint. HKEX's international footprint is growing, and last year, we added two new offices – one in New York, and one in London. And that enables us to get to speak to these potential companies, you know, seeking for a listing, and we can explain what we have to offer better.
Eugene: Bonnie, before we go to the break, I wonder if you have a sort of brief answer to this sort of question that the viewers had. Well, we understand the stock market has been doing better now, and it's very good for the professionals. But trading and liquidity are actually indicators of the healthiness of a capital market and have many implications. And if I'm not wrong, this is not exactly the strongest area of the market, of our market. So, are you working with the government to ... with measures which sort of improves its liquidity?
Bonnie: Yes, yes, indeed, liquidity is obviously something which investors place a very big importance on. And we noticed the fact that, you know, I mentioned these headwinds, right? Liquidity has somewhat slipped in the last few years, and therefore, together with the government, we ... There was this liquidity task force, which was championed by the government and HKEX as a member of. And together, we explored many different ways in which we think we can deploy to shore up liquidity. And I'm very happy to share with you that, in fact, a lot of the recommendations coming out from the Liquidity Task Force have now already been put in place. So, we have recently introduced a new treasury shares regime. We have also recently announced the fact that we are going to move into severe weather trading from Sept 23 onwards, when consultation to explore enhancing or reducing the minimum spreads, trading, spreads, and all these all point to the one direction which is to really improve our liquidity. And I think that's a fundamental thing that we need to do to help bring back more activity into our market.
Eugene: Right. Bonnie, let's take a break now.
Bonnie: Okay.
Eugene: Viewers, you stay with us. We will be right back.
Eugene: Thank you for staying with us. Bonnie Chan, the chief executive officer of Hong Kong Exchanges and Clearing Limited, HKEX, is with us this evening, and has been sharing with us her perspectives on Hong Kong’s role as an IFC. Bonnie, you have explained to us a lot about your strategic directions and looking as Hong Kong is moving in the right direction, the IPOs are coming back, we are both positive. But let's look at something that I am sure all of us are interested. Look at the actual geopolitics, I mean that is something that is out of our control, even the macroeconomics. So, what are you going to do, in terms of boost trading, investment, liquidity, and growth? Briefly, how do you do that?
Bonnie: Boosting trading, or liquidity, I mentioned earlier we are working on a lot of the task force initiatives or recommendations. And I am sure over time, as we continue to roll them out, we should be seeing the impact. So, I am quite optimistic about it. Otherwise, there are other things that we are making a lot of investment in. One of which is our technology. So, if I ask you, Eugene, how do investors invest these days? They no longer wait until the market is open, right? And call the broker, ask for recommendations. What do they do? They probably rely on an app, and they can trade 24/7 around the world. So, as an exchange, what we need to do is to make sure that we continue to invest in our technology, so that we can respond to this change of investor behavior. In that regard, we are making a lot of investments, including something that I announced a couple of months ago, which is to build a new derivative trading platform called Orion. And I think with that kind of investment, we are going to make sure that we stay relevant and we stay a trusted and vibrant market, where investors really would love to deploy their capital in trade with us.
Eugene: Right. Bonnie, we know that the government is also trying to build new relationships or enhance the relationship with the Middle East and ASEAN countries.
Bonnie: Yes. And I am sure the chief executive took us there, and we were there on the tour. What is HKEX, being yourself on Listing Committee, what are you going to do for your shareholders? How are you going to get more businesses from the Middle East and the ASEAN countries?
Bonnie: Okay, so, let’s talk about the Middle East first. Very exciting opportunities we can see coming out of it. In fact, looking at Saudi Arabia, for example, they talk about their Vision 2030, which is basically aimed to diversify their market. And one thing they are very conscious of is the fact that they are right now quite underinvested, shall we say, in mainland assets. And they want to, first of all, increase the allocation to China assets, as they continue to grow their massive AUM (assets under management). And, therefore, we need to capture that, right? And things that we've done, I can tell you, over the last couple of years, first of all, we make friends with them.
Eugene: Okay.
Bonnie: By forming a lot of MOUs, we signed an MOU with the Saudi Tadawul Group, which is their exchange group. On top of it, we have now recognized three jurisdictions in the Middle East, what we call recognized stock exchanges. And they are Tadawul, which is Saudi Arabia, Abu Dhabi, and Dubai. And the importance of doing that is that once we have recognized them as recognized stock exchanges, companies listed on those exchanges can, therefore, come to Hong Kong for a second listing. So, it's an important first step. On top of it, of course I am paying more time interacting with them. So, early in the year, they already brought a few flagship events to Hong Kong, including FII Priority last year, and something called a Capital Markets Forum. And we're going to be reciprocating. I am going to hopefully take the first resumed Cathay Pacific flight to Riyadh in October to attend the FII. And I have already lined up a few trips there. So, more to come, I think, from that region.
Eugene: Right. Let's move on to the Connect Story.
Bonnie: Yes.
Eugene: That is something … it’s the 10th anniversary this year for the Stock Connect program, we've come a long way in terms of scope and capacity. However we have also seen a sort of what we call decreased institutional appetite over the years as well. So, how important is the Connect program for global investors when you look at Hong Kong as a market?
Bonnie: Okay, indeed Connect will be celebrating its 10th anniversary. We started in 2014 with the Hong Kong-Shanghai Stock Connect. And over the last 10 years, we have actually really expanded the coverage of this Connect franchise. So, nowadays, international investors, through the Connect franchise, they can not only invest in stocks, but we have included bond connect, ETF connect, swap connect. And very soon we are going to also include REIT Connect into the program. Now why don't we think about it this way? International investors, generally speaking, still very underinvested in China. If you look at the total market capitalization of the Asian market, this is the online … on land domestic stock market. International investors only hold about 3 percent of that total pie, which is very, very small.
Eugene: Very small.
Bonnie Considering that China is the second largest economy of the world. And therefore the Connect program is really the platform, the machinery, the mechanism, through which we hope international investors can make use of as they increase their allocation to China assets.
Eugene: Since you mentioned it, we know that people are so sort of less attracted to Chinese companies now because we have seen some shift to Japan and India. So, do you still see that trend continuing? Or you think they will come back to the China market?
Bonnie: Yeah, yeah. I suggest that we should take a longer-term view of the China story. You know, it is the second largest economy and it's still growing at a 5 percent forecasted GDP-on-a-GDP perspective. That is massive. And therefore while it is true that there are some short-term phenomena we are seeing, and maybe people are saying okay, perhaps there could be other opportunities to pursue in the regions, such as in Japan and in India, I think they are also very conscious of the fact that China is still producing a lot of really attractive investment opportunities. Say for example, electric vehicle, new technology, AI – these are … I think, the pace of advancement in China is phenomenal. And I don’t think investors are blind to that. In fact, when I go out to engage with investors all over the world, they constantly ask me questions – when is a good time to come back into the market? So, I suggest that, you know, we should focus not on the short term, but more the long-term prospect that the country is able to provide.
Eugene: Right. So I am sure all these are related to the current geopolitical tension as well. So as a listed company, how are you positioning yourself to mitigate the risk and also to capitalize the new opportunities? How are you going to do that?
Bonnie: Well, we always pride ourselves as the super-connector between the mainland and the rest of the world. It is true that, you know, there is a lot of talk and maybe considerations from a geopolitical perspective. But first of all, I do believe that, you know, investors, they take a very pragmatic approach when it comes to making money, first of all. Secondly, we will double down on our efforts to engage internationally. I mentioned earlier the prospect of Stock Connect inclusion if international companies are listed on the Hong Kong Stock Exchange. And so in that regard, we will continue our marketing efforts. Now I would like to point out to you, actually at the moment, international investors account for about 40 percent actually of our trading volume in the cash market, and about 30 percent in the derivative market. So, Hong Kong continues to be able to attract money from around the world. And in that regard, we will keep our efforts, in terms of making sure that we provide the most attractive investment products for these investors to want to stay on the Hong Kong Stock Exchange. And I think, you know, with all that we do, hopefully we will continuously prove to these investors that we will remain a very open, vibrant, and trusted international financial market.
Eugene: Right. Bonnie, I am going to ask you two questions, give us a brief outlook. What is your outlook for Hong Kong? – it is a general question because how to address the confidence issue? This is something that is facing all of us today. How will you address our viewers on those points?
Bonnie: Okay, so the longer-term prospect, I think Hong Kong is very privileged and lucky. I keep going back to the point that we are very unique, in terms of where we sit in the global space. And we are there as a super-connector, meaning that as capital come in and out of mainland China, Hong Kong is the perfect place, where transactions can be conducted. Now, I focused a lot earlier on the inbound flow, but let’s not forget that China is also producing a massive amount of wealth. And with the growing middle class, investors on the mainland, they are also looking for opportunities to diversify their investment. And this is also a unique opportunity or set of opportunities, which Hong Kong can capture, and in fact is in the best position to capture.
Eugene: Right, so …
Bonnie: And therefore, opportunities-wise, we look at both.
Eugene: So, you are confident about Hong Kong’s future?
Bonnie: Very much.
Eugene: All right, okay. I am afraid we have to leave it there for right now. Bonnie, thank you for sharing your valuable insights with us. It is clear that Hong Kong continues to be a dynamic and attractive destination for investors and issuers worldwide. We can certainly be confident that our city remains a global financial powerhouse. Thank you for joining us and have a good evening!
