Besides, some global asset managers are not allowed to own Hong Kong shares due to mandate or compliance restrictions.īut when the broader picture is considered, the liquidity impact from institutions being unable to trade in Hong Kong will be limited. For Chinese companies listed in both cities, it’s not unusual to see their daily turnover in Hong Kong at less than half of that in New York. Liquidity concernsĪs investors weigh Hong Kong against New York, one disadvantage of the Asian financial hub is its comparatively lower liquidity. In March, both the Shanghai and Shenzhen exchanges unveiled new rules on the issuance of so-called Chinese Depository Receipts, through which some tech firms will be able to go public without unwinding their WVR or VIE structures. Among them are UCloud Technology, a provider of cloud computing and storage services, Ninebot, a maker of electric scooters, and Jing Jin Electric Technologies, which manufactures electric motors. The Star Board has, on a discretionary basis, allowed some firms with weighted voting rights (WVR) or variable interest entity (VIE) structures to go public. Nevertheless, Shanghai’s ongoing listing reforms will likely add to the city’s long-term appeal, as China plans to gradually open its capital markets to global investors. In addition, Shanghai’s market regulators have shown a tendency to favour tech hardware companies, while US-listed Chinese firms tend to focus on consumer tech. In fact, a growing number of Chinese tech firms has sold shares in Hong Kong for dual-listing status over the last few years, such as e-commerce giants Alibaba and JD.com, search engine Baidu and gaming company NetEase. In the near term, we expect Hong Kong to be the preferred destination of relisting for most Chinese ADRs, given the city’s more internationalised capital market versus Shanghai. ![]() Hong Kong has eased restrictions on profit requirements and weighted voting rights, clearing some roadblocks to Chinese tech firms that previously could only head for the US for such features, while Shanghai has built a listing venue known as the Star Board, where some 400 tech startups have gone public since its 2019 launch. Hong Kong and Shanghai have been overhauling their listing rules in a bid to lure some of the larger and better-known Chinese tech firms listed overseas. But the case for staying closer to home is looking increasingly attractive. Just like the heroes in the classical Chinese novel Journey to the West, the titans of China’s tech industry have reaped rewards from their quest in distant lands. ![]() An era of their westward quest, which started in the late 1990s with China’s most innovative startups beating a path to US exchanges, is slowly coming to an end. ![]() The tides of global capital markets have turned for Chinese tech firms. Here, we look at how prepared China’s markets are to host such returnee listings, and what the various potential outcomes to the current standoff are likely to mean for investors. The American depository receipts (ADRs) of Chinese firms have suffered massive selloffs this year, as a long-running auditing dispute between the US and China threatens dozens of them with potential delisting, and adds to a confluence of regulatory headwinds, macro concerns, and geopolitical risks spurring volatility in Chinese shares at home and abroad.īut a backup plan for many of these firms - a relisting in Hong Kong, Shanghai, or Shenzhen -may not be the drag on liquidity that some have suggested, and could even bring unexpected silver linings.
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