Eric Landheer worked as head of Asia Pacific for NASDAQ before joining the Hong Kong Stock Exchange as head of issuer marketing last year. He spoke with China Economic Review about the exchange and its future.
Q: What brings companies to list on the Hong Kong bourse?
A: The overriding factor is that there’s been a gravitational shift in terms of the global financial landscape since the global economic crisis. Things have increasingly moved towards Asia, and Hong Kong provides the best option for companies looking at the region. Beyond that, our rule of law, clear and transparent markets, and ability to absorb extremely large offerings have demonstrated Hong Kong’s vibrancy. And in many cases our price-to-earnings (P/E) ratios are higher than other markets.
Q: Why would Chinese firms choose to list in Hong Kong over Shanghai or Shenzhen, where valuations are also very high?
A: I’d like to qualify my response by saying that we’re not in competition with the Shanghai or Shenzhen exchanges. In many of the cases, companies have dual listings in Shanghai and Hong Kong. I believe that Hong Kong allows companies to diversify and broaden their investor base. About 70% of our investor base is institutional, and about 30% is retail. International investors are close to 50% of our investor base.
Q: What about mainland investors? What role do they play now and in the future?
A: We have a growing mainland Chinese investor base, which officially accounts for 5% of turnover. We are also able to take advantage of the perception that the investor base from China will increase over time. As the QDII [Qualified Domestic Institutional Investor program] comes through, high net worth individuals from China are going to increasingly be allowed to invest here in Hong Kong. And now, they can invest directly with renminbi.
Q: As mainland markets and regulations liberalize, how will Hong Kong’s role change?
A: That’s an interesting question. First, let’s go back to 1997. Around 1995 and 1996 people were fleeing Hong Kong, saying that it was over and once mainland China reassumed control businesses here would die, the economy would die, and other dire circumstances would occur. I’ve been coming here since before 1997, and I’ve lived here for the past few years. I see Hong Kong as vibrant as ever today. I believe that the depth of the services industry here, convenient transport, low taxation, freedom of the economy, rule of law and other factors all contribute to Hong Kong’s uniqueness, and will serve it well into the future.
Q: Will the mainland markets ever be serious competitors?
A: As China continues to develop, many companies will choose to list there as well, but until their currency is convertible, until they liberalize even further in terms of rule of law and other aspects, Hong Kong will continue to have a strong presence. Even beyond that, there is a high level of professionalism, a depth of experience, a high level of education, and a long track record in the financial services industry that I believe will continue to hold Hong Kong in good stead.
Q: Some critics say that Hong Kong has grown too reliant on the China story, and needs to diversify.
A: In terms of overreliance on China, obviously the bulk of our listings do come from there. But last year 45% of the proceeds we raised came from overseas. We expect to see more and more [international] companies choosing to list in Hong Kong this year, and not only in the luxury goods and natural resources segments.
Q: So all told, you’re optimistic about the future?
A: I put my money where my mouth is. I worked at NASDAQ for seven years. I wouldn’t have made the move to Hong Kong if I didn’t believe there hadn’t been a gravitational shift in the global economic landscape. The rumors of Hong Kong’s demise have been greatly exaggerated.