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Department of Economics

Research calls for more internationalization and diversification of Hong Kong's financial markets

Despite having a much stronger stock market, Hong Kong is well behind Singapore in international stock listings. But key new niches are emerging with major natural resource and European luxury companies, according to a recently completed study on "Hong Kong as an International Financial Centre for China and for the World" by scholars at Lingnan University.

​The 2-year project is the first ever comprehensive and systematic examination of Hong Kong's strengths and strategic needs as an international financial centre, encompassing economic analyses, interviews of financial experts, and in-depth sectoral studies of Hong Kong financial markets. It was supported by one of the largest Policy Research Grants from the Hong Kong Research Grants Council.

Lingnan’s research points out that Hong Kong's financial markets are big and continue to grow. However, in terms of cross-border business, they are less internationalized and diversified than London, New York, and Singapore — and in recent years South Korea too.

'Although Hong Kong has become an important financial actor globally in the last two decades, complacency about our prospects as a leading financial centre would be ill-advised. We need to make our financial markets and products more user-friendly and attractive to global users to stay competitive, alongside Hong Kong's inherent strengths as a financial centre and the powerful magnet effect of being part of China,' said Prof Jesús Seade, Vice-President of the University and head of the research group, after a conference jointly organized by the Hong Kong Institute for Monetary Research (HKIMR) and Lingnan University today (10 Dec 2010).

Prof K C Chan, Secretary for Financial Services and the Treasury, gave an important opening address at the conference, as did Mr Michael Buchanan, Managing Director and Chief Economist of Goldman-Sachs (Asia), Mr Matthew Harrison, Head of Research and Corporate Development at HKEx, Prof Leonard Cheng, Dean of School of Business and Management at HKUST, and Dr Alicia Garcia-Herrero, Chief Economist for Emerging Markets at BBVA who is a member of the Lingnan research team.

The research calls for an increase in Hong Kong's foreign listings and a modernization of listing requirements and rules, as well as determined efforts to review the relevant rules and requirements to develop Hong Kong as a leading mining finance centre.

Hong Kong has been the top IPO fundraising centre in the world since 2009 and is the preferred IPO hub for large Chinese state-owned-enterprises. However, it is losing to Singapore on smaller and high-tech Chinese firms. In addition, Chinese listed firms in Hong Kong tend to have poorer post-IPO performance than listings in New York and Singapore, which seems to imply that the expected corporate governance benefit of listing in Hong Kong is less than expected.

The study also finds that Hong Kong's banking sector has lost lending-abroad market share to Tokyo and Singapore in the last decade but that it has in exchange attracted more subsidiaries of international banks to establish a local presence. Hong Kong's bond market remains underdeveloped and needs help from the local authority to introduce a market maker to create benchmark bonds, to make bonds available to retail investors, and to help create strong local and regional credit rating agencies. Hong Kong's fund management industry is less internationalized and diversified than Singapore and there is much room for development in wealth management.