Data from Dealogic highlights the extent to which companies have been abandoning the Hong Kong stock exchange. More than $9.5bn disappeared from the Hang Seng Index in the first half of this year – more than the combined total for the previous three years – with consumer products giant L’Occitane International the highest profile departure.
Company Chairman and Director, Reinold Geiger, said the move would make it easier to pursue strategic investments and more efficiently implement strategies “free from the pressures of the capital markets’ expectations, regulatory costs and disclosure obligations, share price fluctuations, and sensitivity to short term market and investor sentiment.”
Trading in L’Occitane International was suspended yesterday (7th August) after its shareholders voted to take the company private. Such deals accounted for $3.75bn of the value wiped off the Hang Seng Index in the first six months of 2024.
Cheng Chor Kit, Chairman and CEO of investment holding company Kin Yat Holdings said coming off the exchange would enable the company to make “notable savings in expenses” while CIMC Vehicles also referred to the costs of maintaining a listing, adding that low trading volume and limited liquidity made it difficult for the company to effectively conduct fund raising exercises on the Hong Kong Stock Exchange.
In addition to these confirmed deals, there has been intense speculation around the intentions of Samsonite and Chinese sportswear firm Li Ning. Li Ning’s eponymous Executive Chairman and Co-Chief Executive is said to believe the company is undervalued on the Hang Seng Index, while Samsonite CEO, Kyle Gendreau, has confirmed that the company is pursuing a dual listing “to enhance value for shareholders.”
The frustration for Hong Kong’s financial market is that just as it was showing tentative signs of a return to positive investor sentiment, the Hang Seng Index has been rattled by fears of recession in the US.
Chris Zee, Head of Equity Advisory Asia at BNP Paribas notes that the market has rallied since mid-April, driven by a comprehensive easing of China’s property policies and an increase in the profitability of China’s industrial enterprises.
However, his observation that “valuation remains cheap at less than ten times forward price-to-earnings multiple” underlines the problem the exchange has in persuading companies to undertake or maintain listings.
According to data from WorldPeRatio, Hong Kong stock exchange’s price to earnings ratio is rated ‘fair’ (neither under- nor over-valued).
The prospect of an emergency interest rate cut by the Fed has direct implications for the special administrative region of China since its currency is pegged to the US dollar. The Hong Kong Monetary Authority has acknowledged that Hong Kong dollar interbank rates will stay relatively high for the time being, while the future rate path remains uncertain.
“We now expect the Fed to deliver an initial string of three consecutive 25bp rate cuts in September, November and December,” says David Mericle, Chief US Economist at Goldman Sachs. “We expect faster cuts because the funds rate looks more clearly inappropriately high, the Fed looks behind – having worried too much about inflation for too long and held steady in July – and the rationale for cutting now includes the more urgent priority of supporting the economy.”
In a speech to the inaugural HSBC Global Investment Summit in April, John Lee, Chief Executive of Hong Kong said his administration was considering additional measures to boost the Hong Kong stock exchange.
But with further delistings anticipated – and uncertainty around technology stocks in particular – it seems the Hang Seng Index is set for further pain over the remainder of the year.
