US-China audit deal: good news for markets, not so for bourse operator HKEX, Morgan Stanley says
- Audit agreement could slow ADR migration wave and lower expectations for more IPOs and turnover gains in Hong Kong, analysts at US bank say
- The top 40 ADRs still without Hong Kong listings have a combined market value of HK$1.2 trillion and generate HK$8.8 billion in daily trading
Last week’s landmark US-China audit agreement injected a huge dose of optimism about the fate of Chinese companies traded on American stock exchanges. The same cannot be said for Hong Kong Exchanges and Clearing (HKEX).
The city’s bourse operator could see a slower migration of American depositary receipts (ADRs) to Hong Kong and the hoped-for boost from new listings and trading turnover on the Stock Connect trading link with Shanghai and Shenzhen, analysts at Morgan Stanley said.
Their caution has played out this week with the Hang Seng Index surrendering the bulk of the 4.7 per cent surge last Thursday and Friday, fanned by the speculation preceding the agreement. HKEX fell on Tuesday to HK$316.40 from HK$328.80 on Friday.
“It could slow ADR migration waves and lower expectations for more IPOs and turnover gains in Hong Kong,” analysts including Richard Xu and Daniel Fang wrote in a report. “We see the scenario of all eligible ADRs migrating to Hong Kong as less likely.”
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HKEX CEO Nicolas Aguzin on the future of Hong Kong’s capital market
An extreme scenario of all eligible ADRs migrating to Hong Kong would bring HKEX an extra daily turnover by HK$20 billion and extra revenue of HK$1.2 billion, likely by 2024, Morgan Stanley had earlier estimated. The more likely scenario would be HK$8 billion and HK$500 million respectively, it added.
