Mainland China’s capital market will triple in size to US$100 trillion in next 10 years, Hong Kong stock exchange boss Nicolas Aguzin predicts
- A key driver of this growth will be a shift of China’s massive domestic savings towards investment in search of higher returns, says HKEX chief executive
- ‘Hong Kong is a gateway to bring international investors to the growth story of China,’ Aguzin tells 2021 Hong Kong FinTech Week conference
Mainland China’s capital market, including both equities and bonds, will more than triple in size in the next decade to US$100 trillion, with Hong Kong playing a vital gateway role, according to the head of the city’s bourse operator.
“The role of Hong Kong is to connect China with the world, as the city is a centre for raising capital, wealth management and risk management. Hong Kong is a gateway to bring international investors to the growth story of China,” said Nicolas Aguzin, chief executive of Hong Kong Exchanges and Clearing in a speech on Thursday at the 2021 Hong Kong FinTech Week conference.
If his estimate is accurate, the Chinese stock market in 10 years’ time will almost match the size of the entire US capital market today, including both stocks and bonds. That figure currently stands at US$96 trillion, according to data from the Securities Industry and Financial Markets Association.
Aguzin said a key driver of this growth will be a shift of China’s massive domestic savings towards investment in search of higher returns. China, the biggest saver in the world, had a gross savings rate of 45.7 per cent as of December 2020, he said.
A majority of these saving are now in either real estate or bank deposits, but he believes more will make its way into stocks and bonds.
“As the interest rate is staying at a low level, people will start to think of new investment opportunities and ideas,” he said.
This will provide opportunities for Hong Kong as mainlanders can invest in its stocks and bonds through the “connect” channels, while those living in the Greater Bay Area can buy in to Hong Kong fund products via the Wealth Management Connect scheme.
Nineteen lenders in Hong Kong and seven in Macau are approved to sell products under the new cross-border scheme.
At present, international investors only hold 5 per cent of the yuan-denominated shares listed in Shanghai and Shenzhen – known as A shares – and mainlanders hold very few international investments, a situation Aguzin described as “underinvestment”.
The yuan is also underused, he said. The currency now only represents 2 per cent of global reserve money at central banks, compared with 42 per cent for the US dollar.
Aguzin expects cross-border fund flows to keep rising in the coming years, which will boost the amount of capital coming into the Hong Kong stock market. The average daily turnover of the city’s stock market has doubled from HK$89 billion in 2019 to HK$180 billion this year, he said.
Hong Kong has been the world’s largest IPO market in seven of the last 12 years. Its pipeline of listing applications stood at more than 200 at the end of September, one of the highest levels on record.
The applicants include 50 health care companies, reflecting the city’s growing global status as a biotech funding hub.
Shan Weijian, chairman and chief executive of private equity firm PAG, is also optimistic about Hong Kong’s future role.
“I am bullish on Hong Kong’s role as an international financial centre as it has a unique role being adjacent to mainland China, the world’s second-largest economy,” Shan said at the same event on Thursday. “Hong Kong has a free flow of capital and information, as well as rule of law and a low tax rate.”
Author: Enoch Yiu, SCMP