Hong Kong poised to become 'Nasdaq of the East'

HSBC cites four trends that will dominate Hong Kong’s equity market.

Hong Kong’s equity market is expected to turn itself as the “Nasdaq of the East,” the HSBC Global Research said in a report.

This comes as Hong Kong’s stock market is supported by ADR “homecomings” and the primary listing of “unicorns,” leading to a rise in transaction volumes.

“Many have opted for a new listing in Hong Kong given the city’s deep capital markets, which could turn the offshore market into ‘the Nasdaq of the East’ given so many of these companies are tech-focused,” the report read.

It noted that the ADR homecomings could also lead to more mainland China unicorns to mull launching their initial public offering in Hong Kong.

HSBC said Hong Kong continues to dominate the market in terms of IPO, ranking as the top market seven times in the last 12 years.

In addition to this, HSBC also expects Hong Kong’s financial market to benefit from the cross-border Wealth Management Connect scheme.

The Wealth Management Connect scheme is an arrangement that allows residents to carry out cross-boundary investment in wealth management products offered by banks in the Greater Bay Area.

“This could cement Hong Kong’s leading role in mainland China’s offshore financial market. Leading financial institutions with a strong cross-border presence will be the key beneficiaries,” HSBC said.

Moreover, HSBC sees environmental, social, and governance factors to be further integrated as this standard has become a “reputational issue,” rather than just a part of corporate social responsibility.

Finally, the bank expects the US Treasury yields to remain low in the coming years, which could impact Hong Kong’s financial sector and cyclical stocks in general.

“That’s significant for Hong Kong, as 60% of the FTSE HK index (mostly made up of traditional Hong Kong companies) which is geared towards Financials while Cyclicals make up 70% of the wider index if we include real estate,” HSBC also reported.