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Every investor that cares about economic & political outcomes in Asia needs to start following the Hong Kong Stock Exchange. No entity better wraps up every critical storyline playing out in the region today. Here's why HKEX's 2021 agenda is such a big deal:pic.twitter.com/IgwYN9xIMi
Hong Kong is an economic jewel for not only mainland China but all of Asia - its financial system is among the largest & most mature in the world, with a long history of capital inflows from developed Western economies.pic.twitter.com/iaKb8dCfFy
As a nation goes, so goes its stock exchange, and Hong Kong proves no different. HKEX is Asia's top stock exchange. They've ranked #1 in global IPOs for 7 of the last 10 years, trade over $4 trillion in annual equities notional, and is the #2 global exchange by mkt cap.pic.twitter.com/rUKPejk7aR
HKEX has for many years been a symbol of Asian expansion overseas, particularly into Europe. Its 2012 purchase of the London Metal Exchange was a blockbuster $2.2 billion deal that bought the exchange a seat at the global table.https://www.ft.com/content/6fdca33c-b54a-11e1-ad93-00144feabdc0 …
Global expansion hasn't been a complete success however. In 2019 HKEX made a $39B bid for the LSE. The deal collapsed days after announced because LSE management wouldn't play ball. Chinese influence was a big factor in deal talks stalling. https://www.reuters.com/article/us-lse-m-a-hkex/hong-kong-bourse-pulls-plug-on-39-billion-play-for-london-stock-exchange-idUSKBN1WN01O …
What is China's relationship with HKEX? Well, China pushed its way deeper into Hong Kong's government in 2020 via its national security law. The Hong Kong government is HKEX's largest shareholder, and elects most of its board. I would call that relationship pretty direct.
A large % of HKEX's revenue comes through its Stock Connect partnership with China's Shanghai & Shenzen exchanges, allowing Hong Kong investors to buy Chinese stocks & vice versa. It has a similar Bond Connect program for fixed income.pic.twitter.com/GLVZi9nNV1
China says it wants to keep Hong Kong as open & prosperous as possible, but I'm skeptical on this point. China's increasingly aggressive posture on the world stage & the US's stern response makes me think Hong Kong will get caught in the economic crossfire.
2021 is a particularly important year for HKEX given their new CEO appointment a couple weeks ago. Nicolas Aguzin takes the HKEX helm after 30 years at JPMorgan leading its APAC and Latin American businesses.https://www.scmp.com/business/banking-finance/article/3123959/who-nicolas-aguzin-former-jpmorgan-banker-set-lead-hong …
HKEX is walking a thin tightrope this year as it works to grow w/ China aggression, capital flight, and volatile global markets erupting all around it. I’ll be doing a deeper dive on HKEX in this week's Friday post - sign up below so you don’t miss it:https://frontmonth.substack.com/
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