This article first appeared in Capital, The Edge Malaysia Weekly on August 7, 2023 - August 13, 2023

BARELY a month since sounding the ceremonial gong at the Rockefeller Centre to mark the opening of its New York office on June 21, Nicolas Aguzin, CEO of the Hong Kong Exchanges and Clearing Ltd (HKEX), is on a charm offensive overseas, including in Malaysia and Southeast Asia, in a bid to shore up international listings as well as trading by overseas investors on, and through, the Hong Kong bourse.

“Malaysia is a great market, a vibrant market. There are a lot of upside and growth opportunities [as well as] capital needs. We are here to provide those capital needs. We want to connect capital with those opportunities,” Aguzin tells The Edge. He was in Kuala Lumpur on July 27 and 28 as part of the Hong Kong delegation led by Hong Kong chief executive John Lee, touring Southeast Asia to drum up support for its bid to join the Regional Comprehensive Economic Partnership (RCEP).

“I don’t look at the current [situation], I look at the potential and I think Malaysia will continue to grow faster than the average developed market for many years to come. So I do believe that this is a market that I want to continue exploring because it has great potential and because there is a cultural affinity between Malaysia, Hong Kong and China,” adds the Argentinian investment banker, who spent three decades at JP Morgan — including as head of its Asia-Pacific business from 2012 to 2020 before moving to its international private bank — and a decade in Hong Kong before being named the first person of non-Chinese descent to head the HKEX from May 2021.

Before arriving in Kuala Lumpur, HKEX had on July 26 signed a memorandum of understanding (MoU) with the Indonesia Stock Exchange (IDX) to explore opportunities relating to cross-border listings in Hong Kong and Indonesia as well as joint product development, including for ESG (environment, social and governance) initiatives and the promotion of sustainable finance in Asia.

Even before announcing plans to open an office in London and New York, the HKEX had in early February signed a similar MoU with Saudi Arabia’s stock exchange operator, the Saudi Tadawul Group, to explore collaborative opportunities, including cross listings — a move that may well give Hong Kong an upper hand with Saudi Aramco, which listed on the Saudi bourse late-2019 and is reportedly looking at another multibillion stock offering.

An Aramco offering would help shore up HKEX’s place on the global initial public offering (IPO) ranking by total funds raised, a league which it topped in 2019 on the back of Alibaba’s US$11 billion (RM50 billion) secondary listing and the US$5 billion listing of Budweiser Brewing Company APAC — the Asia-Pacific arm of Anheuser-Busch InBev, the world’s biggest beer brewer.

In June, the HKEX signed an MoU with the Beijing Stock Exchange (BSE), also to promote long-term cooperation and support cross-listings among qualified listed companies in each other’s markets. HKEX already has long-standing collaborations with the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE), which in recent years are, for the most part, bigger IPO markets than the Hong Kong bourse.

Aguzin points to recent enhancements to the Stock Connect programme that links the Hong Kong Stock Exchange (SEHK) to the Shanghai (since 2014) and Shenzhen (since 2016) bourse, when asked about frequent comparisons with the Singapore Exchange (SGX) and Hong Kong’s bid to reclaim its place as Asia’s premier financial centre — a status clouded following anti-government protests and the imposition of national security laws in 2020, even as thousands of high-skilled workers left to escape the city’s stringent Covid-19 regime.

“For the first time ever this year, investors from the mainland can invest in international companies, if they are listed in Hong Kong [primary listing] and fulfil certain liquidity criteria,” Aguzin says, referring to a cross-border link that previously only allowed mainland Chinese investors to buy Hong Kong and Chinese companies that are listed in Hong Kong [southbound trading], and certain qualified foreign institutional investors (QFIIs) to buy mainland-listed renminbi-denominated Chinese A-shares [northbound trading] on the SSE and SZSE.

“There have been a lot of direct investments into Southeast Asia from Chinese companies investing directly into assets but the typical mainland [retail] investor did not have access and now they have the opportunity. So now, we have to get the best companies to list in Hong Kong and marry that with investors interest … make sure we can get really great Malaysian companies and say we have this [exclusive connectivity with mainland investors] for you. For Malaysia, it is also great because Malaysia has so much potential, it is growing so fast that they need capital to execute all these projects. So, it is a perfect marriage,” he adds, noting that the number of stocks that qualify for Stock Connect had expanded by some 60% this year and onshore trading in Shanghai and Shenzhen are over HK$100 billion (RM58 billion) a day currently.

“No other market in the world can provide that [gigantic onshore demand],” he says, explaining that unlike strict qualified domestic institutional investor (QDII) quotas, there is “almost no limit” for Stock Connect because the quota “is very difficult to reach”.

Over 70% of all international investments into China’s A-share equities market are done via HKEX’s Stock Connect programme. International investors account for some 41% of Hong Kong cash equities market’s trading turnover, with European investors accounting for some 10% of total turnover, says HKEX, which already has offices in Singapore, Shanghai and Beijing.

There are no plans for a trading link with Asean or plans to open a HKEX outpost in Kuala Lumpur at the current juncture, says Aguzin, noting that Malaysian clients are served from an expanded Singapore office plus Hong Kong, whose passport holders were given visa-free entry for up to 90 days following Lee’s recent official meeting with Prime Minister Datuk Seri Anwar Ibrahim. Anwar told reporters that Hong Kong — instead of serving Malaysia out of Jakarta — may open a trade office in Kuala Lumpur to bolster cooperation.

“The delegation has been talking to a lot in the business sector here, leaders of businesses, and we see a lot of interest. And I would extend this beyond Malaysia to Southeast Asia. This is a high growth region, there is a lot of vibrancy, this is a very dynamic region, it is a digitally savvy region, which fits very well with Hong Kong, whereby two-thirds of the capital raising that took place over the last five years have been new economy companies. A digitally savvy population is very, very, good because that creates a lot of unicorns, a lot of potential [and] the demographics of this part of the world is still very encouraging,” Aguzin adds.

Hong Kong — which saw three times more funds raised than all other Asean stock exchanges put together in 2021, and whose market capitalisation is two times that of Asean’s five major exchanges (Malaysia, Singapore, Thailand, Indonesia and the Philippines) put together — is already among preferred overseas listing destinations for Malaysian companies choosing to hold IPOs abroad, apart from Singapore and the Nasdaq in the US.

Hong Kong hosted about 60% or 11 of the 19 Malaysian companies that chose to list overseas from 2019 to 2021, according to a May 2022 paper issued by the Hong Kong Trade Development Council (HKTDC) Research in collaboration with CCB International Holdings Ltd, which also noted HKEX had 2,572 listed companies with market capitalisation totalling US$5.4 trillion as at end-2021, while Bursa Malaysia had 967 listed issuers with a combined market capitalisation of US$414.3 billion.

According to HKTDC Research, 370 of the 967 companies listed on Bursa Malaysia at the time satisfied Hong Kong’s minimum listing requirement, noting that “Malaysia’s fast-growing IT sector and growth companies could be potential candidates for HKEX listing”. Citing Refinitiv data, HKTDC Research noted that Hong Kong had seven Malaysian IPOs in 2020, raising a total of US$117.2 million. This was up from four listings in 2019, two in 2018 and six in 2017, the report said.

As at 1H2023, a total of 32 Malaysia-based companies with a combined market capitalisation of HKS$101.5 billion were listed in Hong Kong and had collectively raised a total of HK$20.3 billion, including fundraising activities post-IPO, HKEX says, without naming the 32 companies.

Bloomberg data, however, shows that there are 21 Malaysia-domiciled companies among some 2,600 listed in Hong Kong.

The Edge’s list of 30 Hong Kong-listed companies with Malaysian links with a combined market cap of HK$108 billion as at Aug 2, 2023, includes nine other companies on top of the 21. The nine include known names like Lam Soon (Hong Kong) Ltd and Guoco Group Ltd, which are members of the Hong Leong Group; Public Financial Holdings Ltd, a 73.2%-owned subsidiary of Public Bank Bhd; VS International Group Ltd, 43.34%-owned by VS Industry Bhd; Parkson Retail Group Ltd, a subsidiary of Parkson Holdings Bhd; and Tan Chong International Ltd, which split from Tan Chong Motor Holdings Bhd following a family legal tussle in the early 2000s. We also include Heng Hup Holdings Ltd, which is registered in Cayman Islands but is headquartered in Shah Alam, Selangor, and operates in Malaysia; as well as MOG Digitech Holdings Ltd and Linocraft Holdings Ltd, which derive most of their respective revenues from Malaysia and are headquartered in Kajang, Selangor, and Johor Baru respectively (See Table 1).

Bloomberg data, however, shows that none of the 30 Malaysian-domiciled or headquartered companies are currently eligible for HKEX’s Stock Connect programme with SSE and SZSE.

According to information on HKEX’s website, under Shanghai and Shenzhen Connect, a company’s market cap cannot be less than HK$5 billion to be eligible for Southbound trading, which allows mainland Chinese investors to trade eligible Hong Kong-listed stocks using renminbi.

Interestingly, Bloomberg data shows that among Asean companies listed in Hong Kong that do qualify for Stock Connect is Cambodia-based casino operator Nagacorp Ltd, which had a RM12.1 billion (HK$20.8 billion) market capitalisation as at Aug 2, as well as Singapore-domiciled BOC Aviation Ltd, with RM26.4 billion market cap, on the same day.

More opportunities will arise over time as HKEX’s Connect infrastructure continues to develop, Aguzin says. Rather than being known as a destination for Chinese listings, he says Hong Kong wants to be an international hub, the “super-connector” connecting capital with opportunities between East and West as well as the mainland and the world — the reason for boosting its physical presence to better serve investors and potential issuers in every major time zone. Hong Kong, Aguzin says, is also Asia’s biggest listing venue for new economy and biotech companies.

“It’s not just about companies from Indonesia, Malaysia and Singapore listing in Hong Kong. It’s also about investors from this side of the world taking advantage of the opportunities in Hong Kong to invest [in the mainland] and at the same time, a lot of [retail] investors in the mainland who historically were confined to investing in the mainland [can now access international companies via Hong Kong].”

HKEX, he says, is “always open to opportunities” but does not require acquisitions to “connect with the world”. “We have had more connectivity initiatives in the last two years than in the last eight years … sometimes, it is in difficult times when you can add a lot of value and we’re working very hard to make sure we connect China with the world, that we connect capital with opportunities and that we start thinking about connecting today with tomorrow.” 

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