Good afternoon ladies and gentlemen. It is truly a pleasure to be among so many Rugby Sevens fans.
Today I would like to talk about the role of Hong Kong's stock market in China's economic development and what the outlook might be for us in the years ahead.
There is no doubt the China story has been phenomenal and gathered much interest, as well as investment dollars.
Aided by our geographical proximity to the Mainland, a shared culture and language, Hong Kong has in the past couple of decades grown to become the leading international stock market for Mainland China-related enterprises.
This development did not happen overnight but was rather an evolutionary process. Since the 1980s - well before other exchanges cast their eyes on the Mainland - the Hong Kong securities market has served as a bridge between China and the rest of the world in terms of capital formation.
In the late 1980s, Mainland China-controlled enterprises, under a Hong Kong or foreign holding company, became the first so-called "red chips" to be listed on the Hong Kong market.
Subsequently, working closely with the Mainland authorities, we developed a channel for China-incorporated companies to list their non-domestic shares - so-called H shares, directly in Hong Kong. They are distinct from A shares which are reserved for domestic Mainland investors. The first H share was listed here in 1993, and they have increased in number ever since.
New trends also surfaced on our market as the Mainland economy continued to develop and conditions changed.
For example, with the re-emergence of the private sector in China, Mainland private enterprises began listing in Hong Kong in 2000, often under Hong Kong or foreign holding companies. Meanwhile the listing of PetroChina, as an H-share, that same year signalled the start of the flotation of large state enterprises in Hong Kong. And we have progressively attracted the listing of more Mainland enterprises, be they private or state-owned or be they small or large.
2005 and 2006 saw the listing of three of the Mainland's large state-owned banks - the China Construction Bank, the Bank of China, and the Industrial and Commercial Bank of China, ICBC, which raised US$22 billion - the world's largest IPO to date.
In the earlier days when large Mainland enterprises were listed in Hong Kong, the normal practice was a dual listing with either New York or London. However, in recent years our market developed sufficient depth and liquidity so that a sole international listing in Hong Kong satisfied issuers' requirements and indeed became the norm.
Data shows in most cases where an enterprise is cross-listed with an overseas exchange, some 80 to 90 per cent of the trading volume in that company's shares post IPO is actually in Hong Kong.
The most recent development was the simultaneous dual-listing in Shanghai and Hong Kong of A and H shares respectively. This first was the listing of ICBC. At the time it was an ambitious move as it was also the largest IPO ever. However, representatives of the Shanghai Exchange, the China Securities Regulatory Commission (CSRC), our Securities and Futures Commission (SFC), ICBC's bankers and professional advisors, and a team from HKEx worked out all the details to ensure a smooth listing.
In the past decade, trading interest - not only in Mainland-related stocks but overall - has increased steadily in our markets and this is reflected in Hong Kong's market cap which has jumped almost fourfold from about US$450 billion at the end of 1996 to about US$1.7 trillion today. The NYSE's market cap increased by 2.3 times, Nasdaq 2.7 times, London 2.3 times, Deutsche Borse 2.5 times, Singapore 2.7 times, and Australia 3.5 times.
The number of Mainland enterprises listed on our exchange has grown from just 38 in 1993 to 368 as at the end of last month. Today, they account for about 30 per cent of the total number of listed companies here, half of Hong Kong's total market cap and about 60 per cent of turnover.
Some have said Hong Kong has benefited from the Sarbanes-Oxley Act and the litigious environment in the US, which has made the US less competitive in attracting foreign companies.
However, I would put forward to you that it is not that the US environment has changed drastically, but rather what has happened is that other markets, such as ours, have gained in maturity and attractiveness as listing and trading destinations.
Hong Kong has benefited not only from our own skilled workforce but also from the expertise of the talented professionals that have congregated from all over the world in our city. Our regulatory environment and corporate governance standards are of international standing, and we work to ensure that they are up to date with worldwide best practices. Additionally, Hong Kong is one of the freest economies in the world with no withholding tax, no capital gains tax, no estate duty and no restrictions on foreign portfolio investors. There is no doubt our open market economy, well-regarded legal system and an active financial media have played an enormous part in our rising appeal.
Today, Hong Kong is able to attract listings of all sizes to our exchange because it is no longer just Wall Street or London that has access to funds - we have managed to attract global investments and develop our own deep pool of liquidity.
A recent survey we conducted showed Hong Kong is drawing in more overseas capital to our stock market than ever before. Overseas investors contributed 42 per cent of our record total market turnover last year - with the majority being institutional investments. Overseas investors' contribution to trading in our market is the highest it has been in a decade.
To leverage on our growing strength, we are seeking to attract more foreign companies from more overseas places to list on our markets. We have visited a number of countries in the region and beyond, such as Vietnam, Malaysia and Kazakhstan, to explain the advantages of listing in Hong Kong and we will redouble our efforts in this regard.
We have also recently clarified the requirements for foreign companies to list on our markets and expanded the list of pre-approved jurisdictions. So, if any of you know of good-quality companies seeking to raise funds, please do recommend the Hong Kong stock exchange. I am confident we have the fundamentals to support such listings. I am afraid our listing fees are so low, we cannot offer any commissions for introduction.
Encouragingly, a survey by the City of London Corporation said Hong Kong was the most likely Asian city to emerge as a real contender to become a global financial centre - assisted by its strong regulatory system and highly skilled financial services workforce. It ranked Hong Kong third in the Global Financial Centres Index, behind only London and New York.
In terms of financial market development, one neighbouring exchange which has experienced significant growth in recent years is the Shanghai Stock Exchange. I cannot, of course, predict what will happen in the future, but the question of whether Shanghai will overtake Hong Kong as a financial centre is indeed one I have often been asked. What I do know with certainty is that the North American and European experience shows there can be more than one successful exchange in a region or country, each with its own unique features.
In this regard, I am convinced Hong Kong will continue to develop as China's international exchange.
Indeed, it was only two weeks ago that Premier Wen Jiabao reaffirmed that Hong Kong's status as an international financial centre was irreplaceable.
Hong Kong's Chief Executive Mr. Donald Tsang who was just re-elected to serve for another five years, also said he would urge Premier Wen Jiabao to strengthen Hong Kong's role as Asia's leading financial centre on a par with London and New York. He also suggested that the Mainland should focus on enhancing Hong Kong 's role by designating, for example, the city as the place to handle all international financial dealings for the country and channelling external capital investment to Hong Kong .
The recent announcement by the Central People's Government that Mainland financial institutions will be permitted to issue in Hong Kong renminbi-denominated bonds is another significant development. I hope that this will happen in the not too distant future and they will be listed on HKEx.
Hong Kong has enabled Mainland enterprises to raise more than US$190 billion in equity capital out of a total of US$345 billion since 1993. But apart from international capital, local listings have also introduced global expertise to Mainland firms and helped raise their regulatory and corporate standards.
Mainland enterprises listed on HKEx may have overshadowed another interesting feature - that is the listing in Hong Kong of non-Mainland owned businesses operating in the Mainland. For example, we have some 40 Taiwanese owned companies which are listed here. This is another good example of Hong Kong as a preferred market.
These benefits, I believe, will continue to be of long-term value to China's overall economic competitiveness and capital market development, and could be of value to other companies in emerging parts of the region as well.
With forecast strong growth ahead for Asia, there will continue to be significant demand for capital, as well corporate governance and management techniques for companies to grow and compete globally. International investors are also expected to remain interested in having a share of the China and Asian growth story within a well-regulated and well-established framework.
Thus, some of Hong Kong's fundamentals I mentioned earlier, such as its free economy, recognised infrastructure, international standing and vast expertise, should enable our market to build on its unique appeal and further branch out.
Our strategy at HKEx is not be competitors to the Mainland exchanges, but rather to complement them, and partner the Mainland in its economic development, even after the renminbi becomes freely convertible, and taking on a more international role.
We are stepping up collaboration with the Mainland authorities and exchanges, for example in the areas of dual A- and H-share listings, as well as information exchange. Indeed, we are expecting to see the debut of the second simultaneous A- and H-share listing very soon.
In addition, to prepare for the further opening of the Mainland market and more relaxed capital controls, we are also working to accommodate the needs of Mainland firms and investors, such as QDIIs, who may wish to participate in the Hong Kong market now and in the longer term. These are potentially strong growth areas.
Over the years, HKEx has also launched a number of Mainland-related derivatives futures and options on the H-shares index, and options on individual Mainland-related stocks, which have received a strong response, and we are poised to introduce more such products.
I am convinced that China will be no different from North America or Europe and that there is ample room for more than one successful exchange in China.
On a related topic, some have asked whether it would make sense for Hong Kong to follow the global M&A trend among stock exchanges and merge with the Mainland ones. The answer to that is that M&As between exchanges in the same country certainly have a higher successful rate, but the corporate structure of the two exchanges in the Mainland currently makes such activity not feasible. Cross-border exchange consolidation, meanwhile, is often fraught with risk.
I am reminded of the story of a chicken and a pig having a conversation at a pub one night when the chicken said, "Hey, let's go into business together." The pig said, "Good idea: how about a restaurant?" The chicken replied, "No, let's be more focused. Let's just go into the breakfast business. I'll supply the eggs and you supply the bacon!"
As this tale shows, the level of commitment and involvement of distinct parties in any consolidation is not easily quantifiable - not to mention potential differences in laws, regulations and management control, to name but a few.
As a profitable listed entity, our vertically integrated business helps secure cost-effective, efficient, one-stop shop services for investors and issuers. Aligning ourselves with other exchanges might increase those costs with limited apparent benefit.
At HKEx, we are focused on doing what we do best and that includes further developing the Mainland aspect of our business and leveraging our strength to be not only a leading international marketplace for securities and derivatives products focused on Hong Kong, Mainland China but also for the rest of Asia.
In the midst of the various business initiatives we are pursuing, what remains unchanged is our focus on maintaining our market's integrity and quality. We are fully aware that only by operating an open, secure, fair, orderly and transparent marketplace will be able to secure the investor confidence required to make the expansion of our business possible.
And while we are flattered to be compared to more established markets such as New York and London, our market is in reality still smaller than these financial centres and this, I believe, serves as an impetus for us to keep working hard.
Ultimately, companies and investors will choose the listing and investment venues that are most suitable for them, based on their requirements and strategies. At HKEx, we remain focused on our core competencies and are committed to securing a cost-competitive market of quality and integrity.
It is also instructive to remember the business we are in is not necessarily a zero-sum game. Although much has been made about the perceived decline in the US' appeal as a foreign listing location, Thomson Financial pointed out that foreign IPOs raised US$10.6 billion in the US last year, which was the highest amount in a decade. We can all benefit from an enlarged pie.
Similarly, bearing this in mind, I believe, there is room for both the Mainland and Hong Kong exchanges to flourish. Competition can spur us all on to do better. And we do see tremendous value in information sharing, cooperation and ultimately mutual development.
Hong Kong has a long history, in spite of being a small economy, of playing a large role in facilitating trade between China and the rest of the world, and this continues to be true of our capital markets today.
As China and other Asian countries reshape the economic landscape in the region and beyond, there are good prospects for the Hong Kong market, as it makes use of the fusion of strengths that has made it unique, to further expand.
With the support of various parties, including market participants like yourselves, I believe - through challenges and competition - you will see the continued evolution of Hong Kong's role as a market for China as well as the rest of Asia, and its forward advance as a leading international financial centre.
As you may already know or may soon find out, Hong Kong is a very resourceful city that is continually on the move, and a city that will strive to maintain the attractive value proposition it offers to issuers and investors worldwide. Of this I have no doubt.
I would like to conclude by thanking our hosts for organising this amazing week of work and play and for giving me the opportunity to share some of my thoughts with you.
Thank you
