Hong Kong’s stock market is about to get a lot bigger, sexier — and riskier.
A flood of hot China tech and biotech listings is heading for the former British colony, in a blow to the New York and NASDAQ exchanges that have hitherto attracted many of China’s choice new economy flotations.
Amid the excitement, investors should watch their step.
Hong Kong Exchanges & Clearing Ltd is to allow innovative companies that use shares with weighted voting rights to apply for initial public offerings starting on Monday next week and is also to admit unprofitable biotech firms.
That is a landmark departure from the exchange’s long-standing adherence to the one-share-one-vote principle and a requirement for a three-year profit track record.
China has also opened the door for companies listed on its the National Equities Exchange and Quotations — an over-the-counter trading venue that has developed something of a reputation as a casino — to sell H-shares in Hong Kong.
Looser entry rules would create a vastly different market.
The relaxation gives Hong Kong a shot at attracting the next Alibaba Group Holding Ltd (阿里巴巴) — or even the current one, if the e-commerce giant chooses to do a secondary listing.
Biotech stars such as Amazon.com Inc CEO Jeff Bezos-backed cancer detection start-up Grail Inc are already heading for the territory.
Other likely candidates include smartphone maker Xiaomi Corp (小米), Alibaba affiliate Ant Financial Services Group (螞蟻金服) and Lufax, the peer-to-peer lending unit of Ping An Insurance (Group) Co (中國平安保險集團). Those three could add US$300 billion to Hong Kong’s market capitalization.
The biggest buzz surrounds biotech. Shanghai-listed Jiangsu Hengrui Medicine Co (江蘇恆瑞醫藥), which has one of the largest sales forces for oncology drugs in China, is up 80 percent in the past year.
Companies like Shanghai-based Zai Lab Ltd (再鼎醫藥), an unprofitable biopharmaceutical firm that sold shares in the US last year, might now opt for Hong Kong.
Such listings could see the territory reclaim its crown as the home of Chinese tech listings, a title lost when Alibaba decamped to New York in 2014.
Wary of opening the gate too wide, Hong Kong has put in some safeguards.
Biotech listing candidates need to have a market value of at least HK$1.5 billion (US$191.1 million) and at least one product that has completed phase-one clinical trials.
They would also be subject to more stringent disclosure requirements. Those weighted voting rights have a time limit, too: If a founder loses control, they will expire.
However, these protections might not be enough.
In the US, which has a disclosure-based system that allows pretty much any hopeful to list as long as all relevant information is made public, shareholders have recourse to class-action lawsuits when companies misbehave.
Investors in Hong Kong and China do not have that option. That makes the role of gatekeeper paramount.
The exchange’s listing committee and the Hong Kong Securities and Futures Commission (SFC) vet listings in the territory, with the China Securities Regulatory Commission fulfilling the function in China.
The SFC opposed dual-class shares in Hong Kong, although ultimately lost the battle. Some investors might see that as reason for caution.
Dual-class structures mean that founders’ interests might not always align with those of other shareholders — a familiar issue in Asia, with its concentration of family-controlled businesses.
Biotech is also a volatile and risky sector. Firms might spend millions on drugs that turn out to be duds. Wild swings in stock prices are common as traders speculate on who will come up with the next blockbuster.
For example, Zai Lab surged almost 90 percent per month after listing on the NASDAQ in September last year. The shares are now back where they started at US$18.
Even as Hong Kong has opened the gates, China has remained somewhat wary. Its overseas-listed tech companies would be able to sell stock in China through Chinese depositary receipts — but only those that are valued at more than 200 billion yuan (US$31.6 billion).
Hong Kong would permit companies with a market value of less than HK$40 billion to have weighted voting rights, as long as they have revenue of HK$1 billion in the previous year.
There is a big bang coming, and doubtless the bulk of these initial public offerings will soar, given the paucity of new economy options in the Hong Kong market.
Just remember: It is buyer beware.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to