Asia Capital Markets Research

Ever since Hong Kong threw its hat into the cryptocurrency ring in 2022, we have been warning that inflated expectations would lead to disappointment. Crypto bros intent on selling the narrative of digital asset liberalization in China had been insisting that turning Hong Kong into a crypto hub was only the first step – next would be the mainland. Not anytime soon. In fact, some prominent crypto exchanges have decided to pull out of the former British crown colony, likely in part because they cannot serve mainland customers.

Hong Kong has historically thrived as a financial center because of its ability to serve as a conduit for capital to and from mainland China. Under the one country, two systems governance model, Hong Kong’s financial system is more open than that of any mainland city, bestowing unique advantages on the territory. Meanwhile, with its capital markets flagging, Hong Kong has sought to use so-called “cornerstone investors” from the mainland – local government entities – to revive its IPO market. Results thus far have been underwhelming, suggesting the need for a more market-oriented approach.

To reach net zero by 2050, Japan aims to slash greenhouse gas emissions by 46% compared to 2013 levels by 2030. To support that objective, in June 2021, the Japanese government announced its Green Growth Strategy and created a US$15 billion Green Innovation Fund. An additional important part of Japan’s path to net zero will be the world’s first sovereign transition bonds.

There is a disconnect between Singapore’s ascendancy and the performance of the Singapore Exchange (SGX). Indeed, the city-state has in recent years solidified its status as Asia’s premier fintech hub as well as the most important financial center in Southeast Asia. In some aspects of financial services, Singapore has surpassed its long-time competitor Hong Kong. Yet definitely not in capital markets. Despite a subpar IPO year for the Hong Kong Stock Exchange (HKEX), it has still been far more active than SGX.

Japan’s stock market rally seems to have staying power: The Nikkei 225 climbed 0.52% to reach its highest level since July 3 on November 24 while the TOPIX advanced 0.54% to end at 2,390.94. Investors appear to have been reacting to inflation data suggesting that the Bank of Japan will exit its ultra-loose monetary policy sooner rather than later. Data compiled by Goldman Sachs show that the TOPIX had risen 24% in 2023 as November 10 in local currency terms, its fourth-best annual performance since 2001. The Japanese benchmark has significantly outperformed the S&P500 Index of U.S. stocks and Hong Kong’s Hang Seng Index.

What happened to that expected recovery of Hong Kong’s IPO market? It’s now November, and we’re still waiting for it. Throughout the year, analysts have been forecasting that it would just be a matter of time, that as mainland China’s economy fully recovered from pandemic-related lockdowns, activity in Hong Kong’s capital markets would pick up accordingly. Yet a new report from KPMG shows that in the first three quarters of the year, the Hong Kong IPO market concluded 44 listings that raised 24.6 billion HKD (US$3.14 billion), down 15% in terms of proceeds and 65% in deal count over the first nine months of 2022.

With Japanese stocks up 20% since March and the market showing no sign of flagging, one wonders if there is a fundamental change underway in the capital markets of the world’s third largest economy. Unlike in recent years past, Japan’s stock market has in 2023 produced the best returns of any major advanced economy, buoyed by a more pro-shareholder approach by companies and regulators. At the same time, investors are waking up to the opportunities Japan offers now that they are no longer starry eyed about China.

The strong recovery that we and many others had envisioned in Hong Kong’s IPO market has yet to materialize. Listings in Hong Kong have raised just $2.6 billion this year, down 47% from the same period last year and far below 2021 levels, according to Dealogic. With that in mind, we are intrigued to see that Hong Kong’s financial regulators appear to be looking beyond the usual up-and-coming Chinese tech companies and cooperating with both local governments in China and the Indonesia Stock Exchange (IDX).

The Indonesia Stock Exchange has been one of Asia’s top performers this year and globally among the top five exchanges by the amount of capital raised. The IDX has even outperformed the Hong Kong Stock Exchange (HKEX) thus far this year, raising US$2.2 billion as of June, according to Refinitiv data. There is reason to believe that the boom could continue for some time in Southeast Asia’s largest equity market.

In recent years, Singapore’s financial center star has risen so high that the city-state is now commonly referred to as the Switzerland of Asia. It’s an apt comparison, especially considering Singapore’s booming wealth management sector. Yet when it comes to capital markets, Singapore Exchange (SGX) is one of Asia’s weakest performers – and not even close to the Hong Kong Stock Exchange (HKEX). SGX has struggled to attract big-ticket listings despite a push to get tech giants to list closer to home, regulatory changes to attract SPACs and tie-ups with other stock exchanges.

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