Hong Kong’s stock exchange operator HKEX topples Chicago’s CME as world’s most valuable as US-China rift brings in more listings

Zhang Shidong
·5-min read

Hong Kong Exchanges and Clearing (HKEX) has overtaken Chicago-based CME Group as the world’s largest bourse by market capitalisation, as hopes of more listings of Chinese technology giants bolsters its prospects.

The bourse operator’s shares rose 3.4 per cent to HK$457 on Tuesday, valuing it at HK$579.4 billion (US$74.7 billion), according to Bloomberg data. CME, the owner of the world’s most diverse derivative exchange, has a market cap of US$64 billion, and Atlanta, Georgia-based Intercontinental Exchange or ICE is valued at US$63.4 billion.

The race for first place was neck-and-neck for most of last quarter, but HKEX decisively zoomed past CME in the final week of 2020, heading into the new year. The rally has given an added urgency to the board to an eight-month search for a CEO to sustain its advantage, after Charles Li Xiaojia quit on December 31.

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A string of major secondary flotations by Chinese technology companies, alongside more money flowing in from mainland traders using the cross-border Stock Connect programme has brightened the outlook for HKEX. After Alibaba Group Holding, owner of the Post, started the trend in 2019, internet giants JD.com and NetEase followed suit with secondary listings in Hong Kong last year.

More Chinese companies trading in the US are expected to come back to the city amid increased hostility from Washington. Hong Kong has been the world’s largest hub for initial public offerings (IPOs) in seven of the past 11 years. A record-breaking listing of Ant Group in November would have catapulted the bourse to the top again in 2020 but for the surprise halt by mainland regulatory authorities.

The offers extra challenges to the new CEO as tensions between Beijing and Washington spilled into the finance arena. The HKEX also needs to infuse new ideas into its three-year strategic plan by widening its range of products and embracing more technology in its stock listing processes.

“The prospects for HKEX are quite positive, especially for medium- to long-term investors,” said Stanley Chan, director of research at Emperor Securities. “In terms of the number of IPOs and market value as a whole, the HKEX will only grow bigger. Its growing market valuation and international appeal will attract more foreign funds.”

HKEX’s ascent to the world’s most valuable exchange was closely linked to Li, who was China chairman of JPMorgan Chase unit before he was tapped for the top post at HKEX. He announced his decision to quit in May last year by allowing his contract to lapse.

The race with CME for first place was neck-and-neck for most of last quarter, but HKEX decisively zoomed past its rival in the final week of 2020, heading into the new year. Photo: Shutterstock
The race with CME for first place was neck-and-neck for most of last quarter, but HKEX decisively zoomed past its rival in the final week of 2020, heading into the new year. Photo: Shutterstock

Li orchestrated the overhaul of Hong Kong’s listing rules that has wooed Chinese unicorns, and masterminded the Stock Connect that integrated the city’s financial market more with the mainland’s. During his tenure, HKEX jumped almost threefold in market cap.

For now, the exchange is in the temporary charge of Calvin Tai, the exchange’s co-president and chief operating officer, while the search for a permanent replacement continues while Li stays on for a while as board advisor.

In his first week at the helm, Tai has witnessed wild swings in stock prices of Chinese telecom giants over US delisting risks. More of the same could be in store in the months ahead.

Chinese companies trading in the US, most of which are fast-growing tech firms, will be kicked out if they do not allow the US regulators to review their auditing results, according to a bill signed into law by outgoing President Donald Trump, known as the Holding Foreign Companies Accountable Act. Beijing bans any foreign agency from reviewing the financial results of Chinese companies.

Continuing geopolitical tensions and associated regulatory challenges would also be key drivers to HKEX benefiting from the major secondary listings of US-listed Chinese firms, according to Christopher Ma, a consultant at law firm Simmons & Simmons Hong Kong.

“An overriding priority for the next CEO would be to continue to leverage on technology to continue shaping the landscape for HKEX to become more competitive and efficient,” he said. That will help Hong Kong remain as the “go-to international financial market” for listing and investment, he added.

A bullish call among Wall Street and European investment banks on Hong Kong stock market may add further impetus to HKEX’s bull run, with Morgan Stanley, Goldman Sachs and Credit Suisse all predicting that the Hang Seng Index will end 2021 higher.

The 50-member benchmark fell 3.4 per cent in 2020, a laggard among the world’s major stock markets. The S&P 500 index rose 16 per cent last year and the Shanghai Composite Index gained almost 14 per cent.

The under-performance in 2020 was due to the large representation of financial and property stocks in the benchmark, which are more vulnerable to economic damage caused by the Covid-19 pandemic, according to Caroline Maurer, head of China and Hong Kong equities at HSBC Global Asset Management. They account for 44 per cent weighting in the benchmark.

“With vaccinations coming into effect, we are going to see more normalised global economic activities,” she said. “That should benefit Hong Kong financials, as well as Hong Kong property [companies] for instance, bringing some tourism and financial activities back [to the city].”

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