Established in 1999, the GEM is still a small exchange with just over 200 companies listed compared with 1,700 in the main board. It was created for small and mid-sized firms to raise small chunks of capital without the cost and time involved in a formal initial public offering. However the GEM has been a disappointment with turnover and market cap representing less than 1 per cent of the Hong Kong market’s total. Looking at ways to reposition the GEM, the Securities and Futures Commission (SFC) has been considering restructuring the market as a special listing venue for high-growth technology firms to list with special shareholding structures. Traditionally Hong Kong has been a difficult place for smaller technology companies to raise capital through an IPO. As technology in becoming an increasingly important sector in China and Hong Kong, the region has been losing out to the US in terms of attracting listings by tech firms. Many proponents believe the GEM could attract new technology firms by allowing companies to list with dual shareholding structure, the main reason stated for Alibaba’s NYSE listing. Top performing GEM listings for the year include two companies targeting China’s growing baby market, online parenting portal China Parenting Network Holdings (8361:HKG) which is up 100 percent since its July IPO and baby monitor manufacturer On Real International (8245: HKG) which is up 33.8 percent since its September 30th listing. Entertainment company Creative China Holdings Ltd (8368: HKG) is up 81.2 percent since its November IPO. The company provides television and online broadcasting program content and organizes events for China’s rapidly growing entertainment market. Rare wine merchant, Madison Wine Holdings (8057:HKG), raised net proceeds of HK$ 56.3 million (over US$7.2 million) by placing 100 million shares on 8 October and is up 33.7 percent. In 2008, Hong Kong removed all wine duties making it the Asian hub of rare wine collecting, constantly setting auction records and pushing rare wine prices to stratospheric levels.
Overall it has been a wild ride for Hong Kong stocks with the Hang Seng Index hitting a seven year high in April after China Securities Regulatory Commission (CSRC) partially lifted restrictions, allowing mutual funds to be invested in Hong Kong through the Shanghai- Hong Kong Stock Connect. China’s stock market also hit a seven-year high in June but then the Shanghai Index suddenly plunged 40 percent over fears of a market bubble. Along with mainland China’s stock slide over the summer, Hong Kong’s market pulled back as well. While the market started to show signs of regaining ground by the fourth quarter, selling pressure resumed in December on expectation a hike in US interest-rates for the first time in a decade will prompt investors to flee emerging markets. Additionally, once rates are up, a new wave of uncertainties could affect markets including capital outflows as the interest rate gap may prompt investors to move their Hong Kong dollar assets to the US dollar.
What to look forward to in 2016 The forecast for the Hong Kong market is mixed with the 2016 outlook depending on three factors; monetary policy in developed countries, China’s macro economy and commodity prices. China is likely to continue its easing cycle to boost the economy in 2016 with monetary and fiscal stimulus. Additionally, picking up slack from traditional economic drivers are Chinese consumers who are fueling the economy’s shift towards a greater consumption and servicesdriven market. The service sector has been expanding rapidly, driving wage growth and supporting consumption with online shopping revenues increasing at an annual rate of more than 50 percent and cinema box office revenues at a rate of more than 40 percent. The strength of China’s consumers can be seen on November 11th, China’s Single’s Day, a day when online retailers offer steep discounts. Last year China’s Single’s Day surpassed the U.S.’s Black Friday to become
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the world’s largest shopping day. This year Alibaba brought in US$1 billion in the first eight minutes and US$14.3 billion for the full 24 hours. After being delayed by the mainland stock market turmoil last summer, the ShanghaiHong Kong Stock Connect is expected to launch the Shenzhen stock trading link by the second quarter in 2016. As the Shenzhen Stock Exchange is dominated by small and medium-sized companies, small-cap stocks and exchange-traded funds (ETFs) targeting retail investors will be some of the main features in the Shenzhen-Hong Kong stock connect. At the same time the Shenzhen link is launched, additional enhancements to the Shanghai scheme will be introduced such as expanded trading quotas and the range of stocks covered by the Shanghai-Hong Kong Stock Connect scheme, increased cross-border regulatory and law enforcement cooperation along with a push forward with the mutual recognition of funds. As for the Hong Kong’s exchange 2016 IPO outlook, expectations are for another strong year. Many mainland companies still prefer listing in Hong Kong as the market has more international investors. Seven to eight companies are planning to each seek tens of billions of dollars and close to dozen other companies planning to seek HK$5 billion to HK$10 billion are expected to list next year. n Ms. Leslie Richardson has over 20 years of investment management and equity research experience. She operates a boutique investor relations firm in Hong Kong for Asian companies listed in the U.S. and Hong Kong. She also assists private companies develop investment material and build an investor following in preparation for a public listing. Additionally, she is the Asian Correspondent for Micro-Cap Review, www.microcapreview.com, a financial magazine focused on mirco-cap companies. Previously, she worked for CCG Elite in assisting Asian-based, U.S. listed clients formulate key communication strategies. Ms. Richardson began her investment career at U.S. Trust Company then went on to join Odyssey Advisors as a portfolio manager and Director of Research. Ms. Richardson specialized in high growth sectors such as bio-tech, alternative energy, IT and telecommunications. She earned her M.B.A. from the University of Southern California. Ms. Richardson is based in Hong Kong. www.elite-ir.com. MicroCap Review Magazine
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