In the News: Hong Kong Secondary Listings; Four-Decade Growth Low; and Index Futures Reform

The expansion to include corporate WVR companies in the secondary listing scheme in Hong Kong could benefit dozens of overseas-listed Chinese tech companies that don't currently qualify. The form could potentially lead to another wave of massive initial public offerings in the city.

The announcement stipulates several requirements for Greater China issuers to qualify for a secondary listing, including that they were listed in one of the qualifying overseas exchanges on or before Dec. 15, 2017, as well as a market cap requirement of $40 billion, or $10 billion with at least $1 billion of revenue for its most recent audited financial year. Looking ahead, the HKEX will conduct another consultation to determine whether to allow unlisted companies with corporate WVR structures to list in the city.

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China to hit 44-year economic growth low 

China's economy is set to see its weakest growth in 44 years as a result of the COVID-19 pandemic. According to a Reuters poll of 37 analysts, the Chinese economy is expected to expand by just 2.1% in 2020. Nonetheless, the growth forecast separates China from other major economies as the only one expected to grow at all this year.

According to the poll, fourth-quarter GDP is expected to increase 5.8% year-on-year, ahead of a growth projection of up to 8.4% in 2021. China has been one of the first major countries in the world to get the COVID-19 outbreak under control domestically, with cases having plummeted in recent months and the economy gradually returning to pre-COVID output.

The Reuters report quoted analysts at research firm Gavekal Dragonomics as saying that China's strong exports and domestic consumption will drive growth in Q4, potentially leading to "one of the best quarters for overall growth in a few years." The forecast marks a remarkable and rapid turnaround for a country that, in Q1, saw its economy contract for the first time since quarterly gross domestic product figures were first reported in 1992. In April, China's National Bureau of Statistics released data indicating a 6.8% year-on-year drop in Q1 and a 9.8% drop from the last three months of 2019. 

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Foreign investors permitted to trade equity index futures

China is allowing qualified foreign investors more trading options on the China Financial Futures Exchange (CFFEX). On Oct. 30, the CFFEX announced that foreign investors under the Qualified Foreign Institutional Investors (QFII) and its yuan-denominated equivalent schemes may trade equity index futures on the CFFEX starting Nov 1.

Three types of stock index futures are traded on the platform today: CSI300, CSI500 and SSE50 index futures. According to Reuters, stock index futures trading turnover on the CFFEX totaled RMB 1.1 billion ($164 million) in September. On the same day of the CFFEX announcement, both the Shenzhen and Shanghai stock exchanges released guidance on the opening-up measure.

Foreign investors have long complained about the lack of hedging tools available in China. The Chinese government has been cautious with developing the onshore derivatives market due to fears that it may lead to excessive leverage and precipitate a stock market crash. Following the stock market crash in 2015, the CFFEX tightened requirements for trading futures contracts and other hedging tools, which have since been relaxed as the stock market has gradually recovered. 

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