Hong Kong SAR Stock Exchange

Hong Kong Stock Exchange’s Rise to a Worldclass Exchange

The first formal stock market in Hong Kong was the Association of Stockbrokers in 1891, later renamed the Hong Kong Stock Exchange (“HKSE”) in 1914. The growth of the Hong Kong economy during the 20th century lead to the creation of other co-existent boards, which eventually combined in 1980. The synergy created by the combination of the four boards in 1980 allowed the Hong Kong exchange to compete on an international level. A corporate restructuring of HKSE in 2000 grouped all the previous exchanges under the name of Hong Kong Exchanges and Clearing Limited (HKEx). Today, the World Federation of Exchanges ranks the HKSE third in the world by total equity funds and sixth by market capitalization. With a total of 1,173 companies listed on the two boards of the exchange, the HKSE total value of share trading in 2006 topped USD$832 billion. Over the course of the last two years the HKSE benefited from the listing of Chinese state-owned companies. In 2006, HKEx net profits rose 88% to $323 million, with overall revenue up 54% and an average daily turnover of $4.3 billion. It is now 10 years since the handover of Hong Kong to China by Great Britain. In 1997 few outside China would have predicted that the HKSE would have been as strong as it is today let alone that the reunification with China would be the main reason.

The Nuts and Bolts of the HKSE

HKSE is comprised of two trading platforms, the Main Board (“MB”) and the Growth Enterprise Market (“GEM”). GEM is an alternative market, which emulates the London Stock Exchange’s Alternative Investment Market (AIM). It was established to provide capital formation opportunities for growth companies from all industries and sizes. While the GEM has been growing since its opening in 1999, its overall performance has been disappointing and the MB is still the primary exchange for investment in Hong Kong. This article focuses on the MB except as otherwise specified. The Hang Seng Index (“HSI”) monitors changes of the 33 largest companies on the MB, and acts as the main indicator of market performance (these 33 companies comprise roughly 70% of capitalization of the exchange). The HSI hit a record breaking high of 20,0001 points on December 28, 2006. The Hang Seng Composite Index monitors the top 200 listed companies, accounting for over 97% of total capitalization.

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