Hong Kong stock market basics

The stock market in Hong Kong is a significant contributor to the country’s economy. Of all commercial buildings, 20% are owned by financial institutions, and 20% of employee salaries go towards the finance industry. In 2010, total revenue from selling shares was triple that from selling property, making it a critical economic input for the region.

Hong Kong is the world’s eleventh largest stock market in total market capitalization. It is also one of the leading long term investors in Asia, with many companies listed on the Hong Kong Stock Exchange founded over a century ago and still operating today.

Today, approximately 2200 instruments are available for trading on the Hong Kong Stock Exchange at any time, making it one of Worlds’ most international financial centres. Investors from all around the globe can even trade shares that represent companies domiciled in mainland China.

Exchange Markets in Hong Kong

Specifically, two markets exist in Hong Kong: The Stock Exchange of Hong Kong (SEHK) and The Hong Kong Futures Exchange (HKE). Both exchanges were created under British rule, but after World War II was handed over to Chinese control in 1946.

The Stock Exchange of Hong Kong

The SEHK has been open since 1891 and was initially used to raise capital for companies with interests in mainland China. The SEHK became a public limited company in 1986 but since 1997 has remained wholly-owned by Hong Kong’s government. It has 13 listed stocks, many of which represent major banks in the region.

At one point, the market had over 200 stocks listed but consolidation over decades led to only 87 currently on offer. Publicly traded companies range from telcos and banks to property and retail companies.

There are currently 1101 listed companies on the Hong Kong Stock Exchange. The first index was formed in 1969 using just 50 stocks, but now there is a separate index for nearly every industry plus one for all companies with no industry specified. The most prominent three indices by market capitalization (size) are the Hang Seng Index (HSI), MSCI China Index and MSCI Hong Kong Index.

The SEHK has a much more liberal listing policy than New York City. Whereas a company must have a market capitalization over US$75 million to list on the NYSE, any Hong Kong-based company with a market cap above HK$10 billion ($1.3B) can list its shares on the SEHK—as long as they are listed in at least two other markets as well.

The minimum share value for big companies is also higher – between US$100 and US$500 per share, but it’s only 100 Hong Kong dollars ($13) for small companies whose total assets rarely surpass $2 million (£1.3M). That means even a young tech startup can launch itself onto the stock market within a few years of being formed without needing to raise any capital!

The Hong Kong Futures Exchange

The HKE operates as an over-the-counter (OTC) exchange, meaning that it trades non-listed products between brokers. Although futures contracts dominate the OTC market, there are also options and swaps available for investors to take positions on different indices, such as Hang Seng or the Nikkei 225.

Because of its exchanges’ open access policy, both small and large companies have found Hong Kong an ideal place to list their stocks for investment purposes. Those companies include Google, Facebook, Goldman Sachs, among others.

Conclusion

To be listed on the Hong Kong Stock Exchange, potential companies must first pass stringent criteria before trading in front of investors. To do so, they need to either be profitable for at least four out of seven years or show an average profit growth rate of 10% or more over three consecutive years. Once eligible, they can then apply to the SEHK, which decides whether or not it will list them depending on their business model and suitability. Contact a reputable online broker from Saxo Bank to start trading in Hong Kong and try out a demo account before investing your own money.

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