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Factbox-Major finance milestones as Hong Kong marks 25 years since handover

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© Reuters. FILE PHOTO: A general view of Two International Finance Centre (IFC), HSBC headquarters and Bank of China in Hong Kong, China July 13, 2021. REUTERS/Tyrone Siu/File Photo

HONG KONG (Reuters) – Hong Kong returned to China in 1997 after 156 years of British colonial rule. Here are some major milestones for the city’s financial markets:

HONG KONG DOLLAR TRADING BAND

The Hong Kong dollar was pegged to the U.S. dollar on October 17, 1983, with a trading band of between 7.75 and 7.85 per US dollar imposed since 2005. The Hong Kong Monetary Authority (HKMA), the city’s de-facto central bank, regularly enters the market to buy or sell the currency to keep it within the band.

DUAL HONG KONG AND MAINLAND LISTINGS

Industrial and Commercial Bank of China became the first company to execute an IPO simultaneously in Shanghai and Hong Kong in 2006 when it issued A-shares and H-shares to raise US$21.9 billion, the largest deal in the world at the time.

STOCK, BOND AND WEALTH CONNECT

Shanghai-Hong Kong Stock Connect was created in 2014 to provide mutual access between the equity markets of Hong Kong and mainland China. Two years later, the programme was expanded to Hong Kong and Shenzhen Stock Connect, which allowed mainland investors access to smaller companies in Hong Kong and international investors access to new economy companies listed in Shenzhen. The connect programmes now cover about 2000 stocks, according to Hong Kong’s Securities and Futures Commission (SFC). In May, China’s securities regulator agreed to include exchange-traded funds (ETFs) in stock connect programmes with Hong Kong.

In 2017, Bond Connect was launched to replicate the equity schemes and allow foreign investors to invest via Hong Kong in China’s multi-trillion bond market. The Northbound Bond Connect has become a major channel for foreign investors seeking access to China’s bond market. In September last year, China said it would permit its investors to trade offshore debt with the opening of the “Southbound” leg of its Bond Connect channel.

Wealth Management Connect launched in September 2021, linking China’s southern province of Guangdong with Hong Kong and Macau, to allow cross-border funds management. The programme enables residents of Hong Kong and Macau to buy mainland investment products sold by banks in the Greater Bay Area, while allowing residents of nine Guangdong cities to buy those sold by banks in the two offshore centres.

WEIGHTED VOTING RIGHTS

Hong Kong Stock Exchange announced in 2018 https://www.reuters.com/article/uk-hkex-regulation-idUKKCN1G70VS it would allow companies with dual-class shares – or weighted voting rights – if they are considered to be “innovative”, in a move designed to facilitate listings from emerging business sectors. The decision was described by the law firm Skadden as the most significant change to Hong Kong’s listing rules in 20 years.

WAVE OF SECONDARY LISTINGS

The weighted voting rights changes in 2018 prompted a wave of secondary – or homecoming listings – which kicked off with Alibaba (NYSE:BABA) Group in November 2019. The Jack Ma-founded e-commerce giant raised $12.9 billion in the deal that was the largest share sale in Hong Kong at the time for nine years. Since then, 18 companies have raised $42.3 billion, according to Refintiv data. The pace of homecoming listings has remained strong as Chinese companies trading in New York prepare contingency plans as U.S authorities press ahead with delisting firms that don’t meet regulators’ auditing requirements.

FUTURES

HKEX launched its MSCI A-share index futures product in 2021, an attempt to meet demand from investors in Chinese stocks for hedging tools at a time of surging volatility.

SPECIAL PURPOSE ACQUISITION CORPORATIONS (SPACs)

Hong Kong Stock Exchange allowed Special Purpose Acquisition Corporations (SPACs), known also as blank cheque companies, to start trading from January 1, 2022, in line with most other major markets in the world.

However, tight restrictions on the type of investors which could buy into the SPACs and banning retail participation dented demand for the products along with the current bout of market volatility.

Only two SPACs have listed since the start of the year.

Stock Markets

Morgan Stanley: bear market rally to continue

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One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.

After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.

Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.

Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”

While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.

Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.

U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.

They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.

Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”

Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.” 



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Stock Markets

Easing chip shortages to help Volkswagen in H2 – CEO

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© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo

BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.

“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.

This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.

“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.

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Stock Markets

Reliance Chairman Mukesh Ambani steps down as director of telecom arm

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© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas

BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.

Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.

India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.

Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.

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