IPOs in Hong Kong

inSight

17 Mar 2005

IPOs in Hong Kong

Hong Kong's impressive performance last year in the amount of funds raised on its stock market is a measure of its growing importance as an international financial centre.

Readers are probably aware of the fact that, in terms of the amount of funds raised, including initial public offerings (IPOs), in the stock market last year, Hong Kong ranked third largest in the world, after New York and Madrid. We were ahead of many traditional financial centres, such as London, Tokyo and Switzerland. Madrid's second position came, to me at least, as a surprise and I found out that this was the result of an IPO of a very large bank there last year.

Every one of us here in Hong Kong should be pleased with this high ranking and Hong Kong Exchanges and Clearing Limited should be congratulated on this achievement. All concerned there have contributed much to enabling the Hong Kong Special Administrative Region Government to satisfy the requirement in Article 109 of the Basic Law, in providing "an appropriate economic and legal environment for the maintenance of the status of Hong Kong as an international financial centre".

This ranking is, of course, just one measure of the status of Hong Kong as an international financial centre, and it is impressive for Hong Kong, being such a small city, to achieve such a high ranking expressed in absolute amounts. But this ranking actually does not address adequately the international nature of Hong Kong's status as a financial centre. As I have often said, an international financial centre is where financial intermediation takes place on an international dimension, in other words, where those managing savings of other jurisdictions and those raising funds for business investments in other jurisdictions meet. It is a place where savings of the rest of the world are channelled into investments in the rest of the world. In this sense, I have always believed that Hong Kong is possibly more "international" as a financial centre than any other financial centre.

One way of appreciating how international we are is to look at the amount of funds raised in the stock market of Hong Kong as a percentage of our Gross Domestic Product (GDP), which is a measure of the size of our economy. Alternatively this can be expressed as a percentage of our Gross Domestic Savings (GDS), which is a measure of the amount of domestic savings that can be channelled into investments through fund-raising activities in the stock market or through the other two channels (banks and the debt market). I recently asked for these numbers to be extracted. Indeed, the amount of funds raised in the stock market of Hong Kong in 2004, both as a percentage of GDP and as a percentage of GDS, was the highest in the world, and by a wide margin. These are the 2004 numbers:

 

Hong Kong

UK

US

Singapore

Ireland

Funds raised in stock market as percentage of GDP

22

2

1

2

2

Funds raised in stock market as percentage of GDS

69

12

8

5

5

Sources: World Federation of Exchanges, IMF, Bloomberg, CEIC, national statistical agencies, and staff estimates.

It is, of course, difficult to imagine 69% of domestic savings (as measured by GDS) or 22% of income (as approximated by the GDP) in Hong Kong in 2004 going into IPOs and other fund raising activities through the stock market. Although the stock market is a popular home for the savings of Hong Kong people, the banks probably still get the lion's share of domestic savings, with the bond market becoming more significant by the day. These large percentage numbers indicate very clearly the significant presence of foreign savings attracted to the fund-raising activities organised in the stock market of Hong Kong. We also know that those raising funds through, for example, IPOs in Hong Kong last year were predominantly Mainland enterprises, in other words, fund raisers from other jurisdictions. Thus, in the meaningful sense of an international financial centre being where financial intermediation takes place on an international dimension, Hong Kong is the most international of financial centres in the world.

 

Joseph Yam

17 March 2005

 

Market Statistics 2004 issued by Hong Kong Exchanges and Clearing Limited on 7 January 2005.

 

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