Hong Kong skyline from The Peak. Photo by Shepard4711. Cropped to fit space.
Hong Kong’s reign as one of the largest financial centers in the world continues in spite of challenging global market trends.
It is the robust and dynamic nature of the Hong Kong market that allows it to move swiftly with the needs of capital players and retain its status as a progressive hub for trading. In 2013, Hong Kong returned to being one of the top three IPO destinations, defined by funds raised, due to rapid economic performance and heightened market sentiment.
Consultants and analysts forecast that this will continue in 2014, bolstered by the recent years of integration with mainland bourses. More mainland Chinese companies from across a range of sectors are considering IPOs through the Hong Kong Stock Exchange, solidifying Hong Kong’s reputation as a strong fundraising platform.
With forecasts that total funds raised through IPOs in Hong Kong this year will exceed HK$250 billion, the Hong Kong market is a leading listing platform for mainland Chinese and overseas companies. Another trend that is adding to Hong Kong’s financial market dynamism is that more small to medium sized companies with principal operations in China are coming to Hong Kong for IPOs which may put Hong Kong capital markets in the same fund raising league as New York or London.
Most significantly, the government has been actively pursuing economic development in order to retain its competitive advantage in the financial services industry, as it’s considered one of the four key planks underpinning the Hong Kong economy alongside trading and logistics, tourism, and professional and producer services.
One of the benefits of government support is that Hong Kong’s financial markets have a strong advocate.
Hong Kong’s capital markets benefit from relatively loose regulations, but strong geographic ties with mainland China. Its diverse financial asset classes and instruments for trading purposes offer a high degree of liquidity and market efficiency, as well as transparent regulations. The Hong Kong government has been proactive in keeping market intervention and taxation to a minimum to maintain market competitiveness.
The proximity advantage of being close to mainland China means that in recent years, this access to the mainland market has heightened Hong Kong’s position as a financial market for investors looking to trade in China.
A number of programs assist in expanding the opportunities to access, including the Qualified Foreign Institutional Investor (QFII) program, RMB QFII and regular foreign direct investment (FDI) to invest in certain areas such as equities, bonds, ETFs, financial futures including index futures and debt futures. In addition to investing in Chinese companies listed on the Hong Kong Exchange (HKEx), investors are also speculating in the CNH market (HK’s Chinese Yuan market) and Chinese Yuan (CNY) bonds (dim sum bonds).
Progressive technology investments have also bolstered Hong Kong’s competitive appeal. The HKEx has invested in the Orion Market Data Platform (OMD), a next generation market data platform. It is a major upgrade and enhancement of the HKEx’s IT platform capability with a committed investment of around HK$3 billion. The revamped platform enables the HKEx to establish points of presence for market data distribution outside of Hong Kong, such as in mainland China. The OMD is working to meet diverse customer needs which include low latency and remote distribution and provides a suite of market data product feeds with content, market depth and bandwidth requirements tailored to suit the needs of different types of customers.
So, what does all of this mean? In order to sustain success and ensure stability and speed of the ‘cross-border’ data connections, financial services firms need to evaluate their current IT infrastructure to ensure it’s built for success. Today, companies must put in place advanced IT infrastructure, deploying in data centers to decrease latency, boost speed and improve application performance. Without high-speed and reliable infrastructure in place for trading purposes, even a microsecond delay could significantly hurt results.