Boosting Market Liquidity and Diversity: Enhancing Hong Kong’s Competitiveness as an International Capital Formation Centre
31 Aug 2023
Being an international financial centre, Hong Kong is well known for its fundraising capabilities. With its vibrant financial ecosystem, companies can gain access to a deep capital pool. Hong Kong has one of the world’s most active and liquid securities markets. As of July 2023, there were over 2,600 companies listed on the Hong Kong Stock Exchange (HKEX), with a total market capitalisation of approximately HK $36 trillion.1
Nevertheless, as global financial markets continue to evolve, Hong Kong should keep pace with financial innovations and changing investor appetite. In recent years, new financing options for small cap/ mid-sized companies and pre-revenue companies have emerged, while more investors are exploring exposure to emerging investment opportunities and private market investments as a means of diversifying their portfolios and improving investment outcomes. Examples are the emergence of special purpose acquisition companies (SPACs) and virtual assets (VAs), and the notable growth of private equity (PE) investments in Asia-Pacific. At the same time, these new investment opportunities pose new risks for the investors, including liquidity risk, which are generally perceived to be higher than that of traditional asset classes.
In this context, as a leading international financial hub, Hong Kong should foster the healthy development of the financial ecosystem as a whole - the growth of non-traditional asset classes, as well as the need of closing financing gaps of small cap/ mid-sized businesses and pre-revenue companies, should be on our radars. Among others, market liquidity and diversity are key attributes of sound investor protection and sustainable market development. Having an effective market structure that facilitates the development of emerging investment products while upholding public interest can lower the risk of market manipulation as it becomes less susceptible to price distortions and other forms of fraud. This is of paramount importance to the sustainable success of all international financial centre.
To stay at the forefront of fast-evolving global financial movements, Hong Kong should continue to review the existing mechanism to ensure that its listing and regulatory regimes can address the evolving needs and appetites of different investor groups.
1 HKEX (July 2023). Hong Kong Market Highlights. https://www.hkex.com.hk/Mutual-Market/Stock-Connect/Statistics/Hong-Kong-and-Mainland-Market-Highlights?sc_lang=en#select3=0&select2=6&select1=30