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��Home>>Business
Shanghai and HK: Strength in synergy
www.chinanews.cn 2007-06-29 10:36:28
(Source: China Daily)
BEIJING, June 29 -- Discovering that size does matter, stock exchanges
around the world are rushing to establish alliances and partnerships with
one another that could lead to outright mergers and acquisitions.
The London Stock Exchange recently announced it has bought Italy's Borsa
Italiana SpA for 1.63 billion euros. Weeks before that, Tokyo Stock
Exchange said it has bought a 4.99 percent stake in Singapore Exchange
Ltd to enhance cooperation on derivatives business between the two
bourses.
This cooperation between two Asian bourses has given a renewed impetus to
the idea of creating a link between the Hong Kong stock exchange (HKSE)
and the Shanghai and Shenzhen exchanges as many mainland companies are
listed on both bourses.
Economists and analysts say stock exchanges are being prompted to look
for partners by rising trading costs, fierce competition in wooing
companies to list, fast-growing derivative products and the ballooning
turnover of hedge funds.
"International stock exchanges are in a hurry to expand their businesses
to vie for the limited capital market resources," said Sun Lijian, a
professor with Fudan University.
"Stock exchanges are seeking cooperation in different areas to provide
differential services to clients, and avoid the fierce competition with
sub-market leaders," he added.
For example, the Tokyo Stock Exchange is beginning to focus on the
derivative market instead of providing the traditional capital settlement
service, which is Hong Kong's main strength.
Asked if similar possibilities of merger and acquisition exists between
Hong Kong and Shanghai stock exchanges, Zhou Wenyao, the admin president
of HKSE, told Security Times that there is no such possibility at the
moment because the renminbi is not freely convertible and the mainland
stock exchange has not been listed.
"Besides, the restriction of capital account has not been totally eased,"
said Sun.
But the benefits from a merger of two bourses, if it ever happens, are
enormous.
Joseph Yam, chief executive of the Hong Kong Monetary Authority (HKMA),
said in his recent report: "It's clear, at least to me, that there would
be big advantages if the two markets were linked: overall liquidity would
be increased, price discovery would be made more efficient, market
discipline would be promoted, and it would be easier for market players,
intermediaries and the authorities to manage risks."
The mainland is now the fourth-largest economy in the world in terms of
gross domestic product, the third-largest trading nation, and the largest
holder of foreign reserves.
"The creation of a channel between the two markets will allow them to
function as one and enjoy the benefits of one, much larger market," he
said.
Shanghai Stock Exchange (SSE) now ranks ninth in the world in terms of
total market value and seventh by total turnover, according to statistics
from the World Federation of Exchanges.
In the past six months alone, the market capitalization in SSE has
increased 99 percent to 14.2 trillion yuan, while the daily turnover is
up 455 percent to 133 billion yuan.
Meanwhile, the average daily turnover at HKSE was as high as HK$33.9
billion in 2006, up 85 percent from the year before. Its net profit was
up 88 percent to HK$2.519 billion.
The only cooperation between the Shanghai and Hong Kong stock exchanges
till now is the memorandum of understanding (MOU) signed in May 2002 on
staff training exchange.
Yam said the Hong Kong stock exchange, together with the Shanghai and
Shenzhen bourses, organized two working groups last year to research on
how to improve the mechanism of an "A+H" listing, including the
simultaneous trading suspension, suspension-lifting rules, and
synchronous price quoting.
"If we are to achieve that channel between the mainland and Hong Kong
financial markets, it will be necessary for the authorities in both
jurisdictions to establish a working relationship between the two
financial systems that will enable the country to benefit from the
opportunities arising from the differences between them," said Yam in his
report.
The bourse acquisition spree began with the New York Stock Exchange
buying 91.42 percent shares of Pan-European Stock Exchange for $11
billion last June. The stock-trading platform, currently connecting New
York, Paris, Brussels, Amsterdam, Lisbon and London, has an average daily
turnover of $120 billion.
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