As the media turned up the propaganda levels to celebrate 10 successful years of mainland rule in Hong Kong, you could forgive Fat Dragon for feeling a little cynical. Prince Charles’s “appalling old waxworks” epithet seemed only too apt as an awkward president toured the former colony, waving stiffly at his southern minions.
But even this sardonic old serpent has to agree that Chinese rule of China’s richest city has not been the disaster that many feared. And for the rulers here in Beijing, booming Hong Kong is indeed a propaganda triumph.
A far greater source of pride, though, is that mainland business no longer feels Hong Kong’s inferior – especially when it comes to the nation’s stock markets. Increasingly the feeling is that whatever the Hang Seng can do, the Shanghai Composite can do better. Sure, there is too much liquidity chasing too many poor-quality assets – but formerly insolvent securities houses are making buckets of cash and retail investors seem happy to take a punt on none-too-transparent stocks.
Domestic mutual funds, until recently puny compared to their Asian counterparts, are on the march. A net increase of more than US$90 billion of assets under management saw funds swell a stunning 60% in the second quarter, with total gains of 110% since the start of the year.
Fund managers now control nearly US$260 billion, equivalent to the total assets of the nation’s insurance companies.
A-share IPO volumes totaled US$17.3 billion in the first six months, compared to US$9.2 billion from the H-share listings of mainland incorporated companies in Hong Kong.
With public offerings and earnings soaring, Beijing is calling on Hong Kong-listed companies to return home. It wants quality listings to shore up standards and dampen volatility as investors swap risky short-term plays for solid stock.
Big boys, including China Construction Bank and Shenhua Energy as well as Hong Kong-incorporated red chips such as China Mobile and Lenovo all plan to list on the Shanghai exchange.
A-share IPOs are expected to rack up a further US$20 billion in the second half of 2007, almost certainly putting the mainland’s bourses on top of the world IPO league. For the big state-owned companies going public, Shanghai is now a viable alternative to Hong Kong as a source of funding.
Ten years after the handover, does this spell disaster for Hong Kong’s own stock market?
Fat Dragon doesn’t think so. Beijing’s success at ramping up the mainland market makes stocks there less attractive to foreign investors looking for China exposure than Hong Kong, where shares in the same firms trade an average 40% cheaper.
Foreign players dumped mainland equities in record amounts in May and June as investors switched to Hong Kong stocks. Some of this reflected fear of a correction in the mainland’s markets, but many investors told Fat Dragon the premium for mainland stocks was simply too high.
A further reason for Hong Kongers to celebrate: more of the mainland’s excess liquidity is finding ways to slop over the border. The regulators are allowing both banks and insurers to invest in overseas equities – which primarily means Hong Kong. The qualified domestic institutional investor (QDII) quota currently stands at US$18.5 billion, but this is set to grow as Beijing lets out more air.
So everything in Hong Kong is looking rosy. Here’s to another successful 10 years under Beijing’s care!