With the continuous deepening of China’s capital market reform and opening up, domestic securities companies are gradually standing on the international stage.
Recently, the CSRC announced the reply to proposal No. 1126 of the fourth session of the 13th National Committee of the Chinese people’s Political Consultative Conference.
In the reply entitled “proposal on establishing a recognized cross-border business brokerage system to maintain national financial security”, the CSRC said that it supports securities operating institutions to explore overseas markets such as Hong Kong in an orderly manner under the premise of controllable risk, and provide investors with comprehensive financial services such as underwriting, recommendation, brokerage and custody.
At present, 35 securities operating institutions have set up subsidiaries abroad, of which 34 have set up subsidiaries in Hong Kong.
In fact, with the rise of China’s economy and the gradual deepening of the reform and opening up of the capital market, Hong Kong’s financial market has become an important bridge and hub connecting domestic and foreign capital, as well as an important battlefield for securities operating institutions to layout overseas business.
In the highly liberalized and highly competitive capital market in Hong Kong, what is the development status of domestic securities companies? How to develop in the future?
Business scope continues to expand
In 2021, China concept shares will return to Hong Kong again.
According to the report released by Ernst & young, the global IPO activity in 2021 was the most active year in recent 20 years. So far, a total of 2388 companies have listed globally, raising US $453.3 billion. The number of IPOs and the amount of financing increased by 64% and 67% respectively year-on-year. China and Hong Kong are still the regions with the most active IPO activities in the world, accounting for 25% and 28% of the global IPO volume and financing respectively.
At the same time, the return of China concept shares became a hot spot in the Hong Kong market.
Wang Jing, chief executive of Guangyin International Investment Co., Ltd., believes that domestic investment banks have played an important role in this wave of return of shares, and all businesses have also achieved rapid development, “With the international capital market financing of domestic enterprises and the international asset allocation trend of investors, domestic investment banks in Hong Kong are ushering in a great development opportunity in history.”
At present, domestic securities companies are also overweight cross-border business.
A relevant person from China Merchants Securities International told the 21st Century Business Herald that China Merchants Securities International has set up subsidiaries in international financial centers such as Hong Kong, London and Seoul, providing more diversified businesses, including securities and futures brokerage, corporate financing, sales and trading, asset management, private equity, bulk commodities and other comprehensive financial services.
Haitong international is also deepening its cross-border business.
On January 1 this year, the Hong Kong stock exchange established the listing mechanism of SPAC (Special Purpose Acquisition company). At present, many spacs have submitted listing applications. From the sponsor’s situation, many investment banks in Hong Kong, such as China Merchants Bank International and Haitong international, have participated in the sponsor.
Dongxing Securities Corporation Limited(601198) analyst Liu Jiawei believes that the license is a necessary resource for the exhibition of intermediaries. From the perspective of acquisition, a number of domestic securities companies have obtained the basic business license No. 1 / 4 / 6 / 9. “CITIC holds the class 3 leveraged foreign exchange trading license through CITIC Lyon and Guotai Junan Securities Co.Ltd(601211) through Guotai Junan Securities Co.Ltd(601211) foreign exchange Co., Ltd., which is a relatively scarce license resource”.
Liu Jiawei said that at present, a number of Chinese securities companies adopt group operation and disperse licenses to different business entities, which makes it easier to meet the soft conditions of “whether there are appropriate candidates” for license applicants
acquisition of licenses of CITIC and Haitong in Hong Kong
data sources: wind, Dongxing Securities Corporation Limited(601198)
investment banks, derivatives, margin and other parties
The market share of investment banking business of mainland securities companies is gradually increasing.
According to wind data, by the end of last year, 97 new shares had been listed in the Hong Kong stock market in 2021, raising a total of HK $331.4 billion.
Among them, 29 are exclusively sponsored by domestic securities companies, and 35 are jointly sponsored by domestic and foreign banks.
It is worth mentioning that among the top ten “fund-raising kings” of Hong Kong stock IPO in 2021, China concept shares accounted for half of the country, reflecting that China concept shares’ financing ability and market attention are much higher than other new shares.
According to the statistics of Dongxing Securities Corporation Limited(601198) , Haitong Securities Company Limited(600837) completed 22 IPO projects in the first half of 2021, with the number and amount of underwriting ranking first among Hong Kong investment banks; Citic Securities Company Limited(600030) completed 14 IPO projects in Hong Kong market in the first half of the year, with an underwriting amount of US $1.632 billion; 11 refinancing projects, with an underwriting amount of US $3.461 billion. These data can be seen that the share of mainland investment banking business is increasing.
Derivatives are also an important part of Hong Kong’s securities market.
Bull bear certificate and turbine certificate are the most popular derivatives in the Hong Kong market. Their trading volume accounts for about 30% of the total trading volume of the main board in Hong Kong.
The website of the Hong Kong Stock Exchange shows that domestic securities companies Haitong international and BOC International have market making qualifications.
In addition, in the Hong Kong market, banks and securities companies generally provide financing services to investors. Investors who have opened a “margin account” can use the financing amount they provide for leveraged investment to enlarge their income when trading stocks.
In terms of margin business, foreign securities companies have more advantages. According to relevant people of Yingtou securities, in comparison, foreign securities companies have lower financing costs and higher leverage ratio.
Liu Jiawei said that there are no substantive barriers for domestic securities companies to carry out margin business, but customer resources, their own capital scale and risk control ability are the necessary capabilities for high-quality business development. Therefore, in the process of exhibition, while actively expanding customer resources and pursuing rapid growth of business scale, domestic securities companies need to focus on the matching of scale and capital and the dynamic management ability of risk.
give play to the advantages of investment banks and improve risk management
In the view of insiders, the emergence of the tide of concept shares returning to Hong Kong in recent years has not only brought rich market space to domestic securities companies, but also led to the development of investment banking, asset management and other businesses.
Xingzheng International said that it should fully tap the advantages of Hong Kong as an international financial center and continuously cultivate the Hong Kong market.
In terms of asset management business, China’s core asset fund under Xingzheng international won mutual recognition between the two places in 2021 and was approved as “northward mutual recognition fund”.
At the same time, China’s core asset fund is the largest equity public offering fund under Xingzheng international. The fund scale is ahead of the similar equity public offering fund products issued by asset management of domestic securities companies in Hong Kong. It has become the first equity public offering fund that operates independently among asset management companies of domestic securities companies in Hong Kong and reaches the mutual recognition of funds in mainland and Hong Kong.
Liu Jiawei believes that on the whole, at present, Chinese securities companies are most likely to make a breakthrough in investment banking. The return of Chinese stocks and the strong growth momentum in the number and scale of Hong Kong stock IPOs of mainland enterprises give domestic securities companies considerable performance increment. The scale of margin business continues to grow rapidly, but we need to pay attention to our own capital scale and business risk control ability. Chinese securities companies have great room to improve in the field of derivatives business, but derivatives business requires securities companies to have capital support, strong product design and risk hedging ability, so we should give full play to the advantages of investment banks and deeply cultivate local resources in Hong Kong, Improving risk management capability will become the future driving force of domestic securities companies in Hong Kong.
