Hong Kong Stock Exchange

— What were the main constituents of the success of HKEx, which made it gain one of the leading positions in the world?
Both factors beyond and within our control have played a part in our emergence as a leading international financial centre. First, I would highlight the integration of Hong Kong’s exchanges and clearing houses in 2000 as a major milestone. The comprehensive reform of the market structure and creation of a single holding company, HKEx, strengthened Hong Kong’s financial position and its role internationally. The merger lowered costs and significantly improved our efficiency and risk management, as operations of the securities and derivatives exchanges as well as their clearing houses came under one roof. Demutualisation and our listing also broadened HKEx’s ownership. We were one of the first exchanges worldwide to go public and this helped us reinforce effective corporate governance and ensure a strong business focus.
Second, the rise of Mainland China as an economic force has contributed significantly to attracting more companies and investors to our market.  Early on, we realised that Mainland companies would need capital to grow and that Hong Kong can serve as the premier international capital formation centre of China, meeting the capital needs of Mainland enterprises. Even before the first H-share listing in 1993, we had already attracted the listings of a number of red chips. Today, we have over 450 Mainland firms listed on our Exchange, representing nearly 60 per cent of our market capitalisation.
Third, we remain ever mindful of the need to maintain the quality of our markets and to serve the public interest. We do this in a variety of ways, for example, by upholding regulatory measures, ensuring our rules and practices are of world-class standards, working on our competitiveness, and advancing our infrastructure so it remains robust and reliable. These in conjunction with the efforts of participants in our market have helped us achieve strong results.

— Last year You made a statement on the necessity to create in China of a unified stock market, in particular, creation of the common system of listing and a unified trading platform for the stocks of Hong Kong, Shengzhen and Shanghai.  What is the progress on that?
HKEx continues to work closely with its Shenzhen and Shanghai counterparts as well as the various Mainland regulatory authorities. We have regular dialogue on regulatory issues and matters of mutual interest, such as reviewing arrangements for simultaneous listings. We also work together in other aspects like personnel training and the exchange of information. 
The integration of the Hong Kong and Mainland economies is ongoing and irreversible, with our ties strengthening. However, for there to be a unified trading platform, the issues of capital account liberalisation and the convertibility of the renminbi have to be addressed.  Among the other matters that would also need to be worked on include the further harmonising of our rules and regulations. At the moment, the renminbi is not a freely convertible currency and the systems and structures we have in place here and in the Mainland are different. Therefore although tied, the Hong Kong and Mainland markets remain distinct.

— Kazakhstan is taking its first steps to develop its stock market.  Your recommendation as the head of one of the biggest in the world stock exchanges, of course, will be of high value.  What are, in your view, the main prerequisites for creation of a strong stock market?
As we have reiterated on a number of occasions, we believe market quality is key to the success of any securities market. Market quality inspires investor confidence and investor confidence results in better trading flow which, in turn, attracts the listing of more quality companies. These all create a virtuous cycle that deepens market liquidity. Among the ingredients to achieving a market of quality are the role of law and sound legal system, good communication and media, the adoption of international practices, high transparency, cost-effective and efficient operations, reliable technological infrastructure and a broad range of product and service offerings.  To achieve these objectives, a highly skilled and professional workforce be it bankers, lawyers, accountants, brokers etc is necessary and indispensable.

— Our Government set forth a task to turn Almaty, which is Kazakhstan’s biggest city, into a regional financial centre in Central Asia.  It also plans within the next 5-10 years it will join the 10 leading financial centres of Asia, bringing its capitalization from the present US$65.7 bln to US$ 300 bln.  What are your comments on it?
I welcome such a development. Kazakhstan, with its vast resources and robust economic growth, has significant potential to continuing accelerating its development. A vibrant capital market would help Kazakh companies raise funds to strengthen their operations and benefit shareholders.

— How do you estimate the perspectives of cooperation between the stock markets of Hong Kong and Kazakhstan?
Hong Kong looks forward to strengthening cooperation with Kazakhstan. HKEx signed a memorandum of understanding with Kazakhstan in December 2006 and last year in May we co-organised a conference in Almaty with the Agency of the Republic of Kazakhstan on Regulation of Activities of the Regional Financial Centre of Almaty City and the Consul General of Kazakhstan in our region to explain the advantages of listing in our city. The conference was well attended and we look forward to more such joint events. Hong Kong welcomes Kazakh companies that want to raise funds and raise their profile in Asia and internationally, in addition to becoming better acquainted with global standards and practices. At the same time, we are in support of the progress of Almaty as a regional financial centre and would be glad to share our market’s experience.

— At present, the whole world is expecting the financial crisis.  Some people say that the peak of the crisis is over and the situation will improve.  Others say it is vice versa, i.e. the crisis is just beginning, and the global economy will face serious shocks.  What is your opinion on that?
There are other more qualified commentators who can give a detailed analysis of the state of the global economies. While I do not know what the future holds, I will say these are challenging times for central bankers, businesses, investors and consequently stock exchange operators as well. There are no easy solutions to the problems we are witnessing. We, at HKEx, will continue to monitor developments, and ensure that our markets function effectively and efficiently regardless of cyclical movements. We remain focused on long-term growth by improving our product and service offerings, increasing the attractiveness of our platforms, and enhancing our systems and operations.

— In your view, how the Asian markets feel themselves against the crisis of liquidity and possible recession which threatens the USA and Europe?
The downturn in the US and Europe, which represent some of the largest and most developed economies in the world, will unavoidably affect Asia. The Asian markets have not decoupled from them. While it is true that intra-Asia trade and domestic demand should offset export weakness to some extent, Asia’s growth is likely to moderate. Hong Kong’s GDP growth is forecast at 4-5 per cent for this year from 6.4 per cent in 2007. The Mainland Chinese economy is expected to cool to around 9-10 cent growth after last year’s 11.9 per cent. Slower growth for China, at least, is not necessarily bad as the authorities have been trying to prevent the economy from overheating. And to be fair, these are still quite robust numbers. Of course, the downside risk from the extent of the economic problems the US and Europe are facing is still unknown at this stage.