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‘Very sensitive’ US-China rift poses problem for Hong Kong inventory change chief

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Next week, on the first in-person World Economic Forum in two years, Nicolas Aguzin will try to steer executives and officers that China is open for enterprise.

The chief government of the Hong Kong inventory change — a former JPMorgan banker and its first non-Chinese boss — was introduced in a single 12 months in the past to speed up the mixing of China’s financial system with worldwide finance.

“The core objective of everything we’re trying to do is to make sure that we continue connecting China and the world,” Aguzin instructed the Financial Times. “I’m not saying it’s an easy agenda, [but] that’s what we have to do.”

But since he took over, decoupling between China and the US has intensified. Growth in China is being strangled by lockdowns to attain “zero-Covid” as Beijing is pursuing a regulatory crackdown that has wiped trillions of {dollars} from firms’ market worth and resulted in a world retreat from Chinese shares.

“He is a victim of circumstance,” mentioned an individual near the HKEX board. “The charitable way of interpreting it is to say he’s been prevented from getting started — another way is saying he hasn’t achieved very much.”

The plan to bolster HKEX’s function because the bridge between east and west has been “defeated for the time being because of the hardening by the US towards China”, the individual added.

After being minimize off from the worldwide monetary neighborhood since early 2020 — Hong Kong solely lifted restrictions on non-residents to enter the town in May — Aguzin will lead the HKEX delegation in Davos alongside Laura Cha, its chair and a veteran Hong Kong businesswomen.

For Aguzin, who doesn’t converse Mandarin, sustaining relationship with Beijing means leaning on HKEX chair Cha, who was a vice-minister of finance in Beijing within the early 2000s.

“HKEX is a very political place,” mentioned a senior financier in Hong Kong who’s an acquaintance of each Aguzin and Cha. “I don’t know if anyone is going to do that job well, there are a lot of people you have to keep happy.

The Davos trip comes after Aguzin made his first visit to mainland China as HKEX chief executive in March. He was called to Beijing as President Xi Jinping’s government prepares to further open China’s capital markets and works to invest up to $50tn of household assets outside its borders.

Aguzin, an Argentine who goes by his childhood nickname “Gucho”, mentioned that Beijing officers expressed “significant interest in making sure Hong Kong is plugged into the international market” throughout his go to.

That means preserving the ties between the world’s two largest economies, mentioned Aguzin. “Everything we’re doing today is to try to avoid these forces that we’re seeing of . . . technology decoupling and trade also stopping. No interaction [between China and the west] cannot be good for anyone.”

Worsening stress between China and the US, aggravated by the conflict in Ukraine and the specter of sanctions, have strained Hong Kong’s function as a monetary middleman between the 2 superpowers.

“The geopolitical environment is very sensitive right now,” Aguzin mentioned. “The combination of geopolitics [and] the pandemic has made being the bridge a little bit harder.”

HKEX reported its worst quarterly revenue in two years in March. Hong Kong’s complete fairness fundraising within the first quarter fell 90 per cent from a 12 months in the past to the bottom degree because the international monetary disaster, whereas the market worth of HKEX has fallen by round 1 / 4 — or roughly $19bn — since Aguzin took over final May.

Critics say that HKEX has turn out to be over-reliant on Chinese capital, with Chinese firms accounting for nearly 80 per cent of Hong Kong’s HK$37.6tn ($4.8tn) inventory market.

“They should have done much more over the last 30 years to promote Hong Kong as the Asian financial hub and not just a mainland Chinese financial hub,” mentioned David Webb, a former HKEX board member.

But, he added, “it’s never too late, and they do seem to be realising they’re overexposed to one economy.”

Line chart of Average daily equity turnover ($bn) showing Souring China sentiment weighs on trading activity

Attempts to diversify have included a failed bid to purchase the London Stock Exchange in 2019 beneath Aguzin’s predecessor, Charles Li.

This 12 months, Aguzin secured the IPO of yachtmaker Ferretti, the primary Hong Kong-listing by an Italian firm in additional than a decade, although it raised simply $243mn and its shares are buying and selling under their itemizing worth.

In the previous, the focus on China was not such an issue. “I never lose any sleep if we don’t have a lot of international listings,” mentioned a former government of HKEX.

“As long as Chinese companies are coming here because of the international capital, and international capital comes here because of the Chinese listings, it’s the perfect match.”

That mannequin is being examined by deteriorating US-China relations and Beijing’s regulatory assault. A push by Aguzin to internationalise HKEX by means of a international acquisition would most likely be difficult by the danger of US sanctions for any goal firm, in line with folks near the change.

HKEX’s governance, which incorporates a number of political appointees of the Hong Kong authorities, has hindered talks on international growth prior to now, in line with one of many folks.

“I’m not going to close my eyes to any international opportunity,” Aguzin mentioned, “but I also recognise that it’s really difficult to do.”

Hong Kong has not benefited from an anticipated growth of offers redirected from the US after Beijing launched a cyber safety probe into ride-hailing app Didi Chuxing quickly after its New York IPO. A 12 months later, it’s not clear if Beijing will give a inexperienced gentle to Hong Kong listings of Didi or different firms with delicate information.

“Homecoming” share gross sales of Chinese firms on Wall Street have slowed in Hong Kong even because the US has warned it’s going to de-list 270 Chinese firms by 2024 over entry to monetary audit info.

The souring market sentiment in the direction of China has resulted in a “listing traffic jam”, in line with the second government near the change. Around 150 firms — all however 4 of them from Greater China — have been granted a greenlight by HKEX however haven’t but gone forward with itemizing their shares, in line with information from Dealogic.

“If you try to project what’s going to happen in the next three or four months or even the next year, it’s going to be very, very challenging,” Aguzin mentioned, citing the “soft” valuations in tech shares and the IPO slowdown. “But if you look at the next five or 10 years, the opportunities are massive.”

A picture of statues at the Hong Kong Stock Exchange
HKEX reported its worst quarterly revenue in two years in March © Dale De La Rey/AFP/Getty Images

Seizing the chance requires reform, mentioned Aguzin. HKEX has been criticised for its famously excessive limitations to entry, equivalent to minimal revenue necessities, that make its listings dearer and time-consuming in comparison with New York or London.

In January, HKEX modified guidelines to make it simpler for Chinese firms listed abroad to conduct secondary share gross sales and opened the change to Spacs. However, the reforms had been “cautious”, in line with an individual on certainly one of HKEX’s advisory boards, noting that Spac listings in Hong Kong had been way more onerous than rival exchanges.

Aguzin can be dealing with stress within the UK the place the Financial Conduct Authority is investigating a fiasco on the London Metal Exchange — which is wholly owned by HKEX — that left the world’s principal nickel market suspended for days.

It is one other headache for Aguzin as he travels to Davos to salvage a tough 12 months in control of the Hong Kong change, however he’s clear about his mission.

“What I want to make sure is that we can just maintain that connectivity,” he mentioned. “I’m not looking for the statue of Gucho.”

Additional reporting by Stephen Morris in London

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