Hong Kong bourse boss trusts in awkward necessity

MTR

10/01/2020 03:17

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Pete Sweeney
    HONG KONG, Jan 10 (Reuters Breakingviews) - Charles Li is
worried about the Hong Kong Exchanges and Clearing  0388.HK ,
but not very. Speaking at a Breakingviews Predictions event on
Thursday, the stock exchange’s chief executive said he’s
confident the HKEX’s – and by extension, the financial centre’s
- awkward relationship with mainland markets will remain. “We
are that magical gear [in the middle of] two big wheels,” he
said – the wheels being China and foreign investors. A 23% rally
in the company’s share price since September, despite an 8% fall
in third-quarter earnings from a year ago, suggests investors
agree.
    The $45 billion bourse operator is in a tight spot.
Political unrest has taken a wrecking ball to the economy, which
is in recession, and hammered local outfits like MTR Corp
 0066.HK , manager of the subway system, which has been
repeatedly vandalised by demonstrators. HKEX itself may become a
target of anti-Beijing sentiment if it permits Megvii, a Chinese
surveillance technology company blacklisted by the U.S.
government, to float. Li noted all companies are welcome to
list, so long as they meet the criteria.  
    President Xi Jinping may be trying to hedge his dependence
on the former British colony. He visited Macau recently, and
there’s talk of turning the gambling hub – which like Hong Kong
is outside of Chinese capital controls – into an alternative
finance centre. There is also the standing threat from Shenzhen,
which houses a $3.5 trillion rival stock market just across the
border.
    Yet Li is unintimidated. “Be my guest,” he said to Macau. “I
don’t think we should be losing any sleep.” The cross-border
trading connections he established – between Hong Kong and
Shenzhen as well as Shanghai - are popular and robust. In
contrast,  the necrotic Shanghai-London scheme has been
suspended after just one listing, according to Reuters in
January. Moreover, despite violent protests, HKEX has kept
floating big names like Anheuser-Busch InBev's  ABI.BR  Asia
unit and Alibaba  BABA.N   9988.HK , and the pipeline looks
healthy enough. 
    Fundamentally Li is betting that China’s financial markets,
distorted by excessive regulation, state-owned giants, capital
account controls, and a volatile, retail-heavy investor base,
will remain more or less the way they are. That means Hong Kong
can endure as the only genuine international finance centre
China Inc can rely on. A cynical bet, perhaps, but not an
unreasonable one. 
    On Twitter https://twitter.com/petesweeneypro 
    
    CONTEXT NEWS
    - Hong Kong Exchanges and Clearing Chief Executive Charles
Li, speaking at a Breakingviews Predictions 2020 event in Hong
Kong on Jan. 9, said he has confidence in the future of the
exchange, and expects Beijing’s continued support. He also
warned of “economic devastation” after seven months of
anti-government protests.
    - On Nov. 6, HKEX reported an 8% fall in quarterly net
profit from the same period a year earlier, the steepest profit
slide in nearly three years.
    -  For previous columns by the author, Reuters customers can
click on  SWEENEY/ 
    - SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS: http://bit.ly/BVsubscribe

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Hong Kong exchange chief warns of economic 'devastation' from
protests     urn:newsml:reuters.com:*:nL4N29E2JH
BREAKINGVIEWS-Politics cripples shaky China-UK stock link   
 urn:newsml:reuters.com:*:nL8N2970YY
BREAKINGVIEWS-Beijing will dilute Hong Kong with Shenzhen   
 urn:newsml:reuters.com:*:nL4N28C23L
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Robyn Mak and Sharon Lam. Additional)
 ((pete.sweeney@thomsonreuters.com; Reuters Messaging:
pete.sweeney.thomsonreuters.com@reuters.net))