Story of a Stock Exchange

Hong Kong hosts the world's freest economy, so it is no wonder that the Hong Kong Stock Exchange is a topic of intrigue. Lauren Weirick revisits the HKEx from the past to the present, with an inside perspective provided by those in the stock exchange business.

A "Brilliant History" Market crashes, colonialism, the return to Chinese sovereignty, the Asian Financial Crisis, the world's largest Initial Public Offerings - through all the ups and downs, the Hong Kong Stock Exchange has soldiered on, becoming one of the world's most successful markets in the process. The HKEx, as it is commonly known, has had a long history. "Hong Kong as a region is seen as a leader, not a follower... The market is developed, but it has [all] stemmed from its brilliant history that goes back thousands of years," says an insider. After the territory became an official British colony in 1842, both Hong Kong's population and prosperity grew. The region was established as a trading hub and gateway to China, where money flowed in and out on a daily basis. By the 1860s, the first Companies Ordinance was passed, and the Hongkong and Shanghai Banking Corporation was formed. (Now called HSBC, the bank is one of the largest stocks on the exchange). The stock exchange itself began as the Association of Stockbrokers in Hong Kong, which at the time had no Chinese members. Throughout the following century, Hong Kong stayed abreast with infrastructure expansion, an extensive labour force and a booming financial sector. In 1969, the Hang Seng Index (HSI) was made public. In 1982 talks began about eventually handing over Hong Kong from the British to the Chinese. On 1 July 1997, the handover officially took place, while at the same time the China market was progressively opening up. Then disaster struck. The day after the handover, the Thai baht collapsed and the Korean economy sank, sparking the East Asian Financial Crisis. Avian Flu and the SARS crises followed. Confidence buckled, but the resilience of the Stock Exchange did not. In the midst of these predicaments, the HSI eventually improved, and in 2000 the HKEx became one of the first stock exchanges to go public. Later that year, electronic trading was introduced, changing the way stocks are exchanged.

HKEx Today The Hong Kong Stock Exchange is massive and continues to grow. Today Hong Kong's stock market is ranked seventh globally in terms of market capitalisation. Last year the world's largest IPO, Chinese-owned ICBC, was listed on the HKEx and is now one of the world's largest banks. In April 2007, CITIC Bank, listed on the HKEx, was crowned the year's largest IPO. For a stock exchange housed in a city of just under seven million people, figures like these are incredible. Over at the HSBC trading floor, the enormity of the HKEx is apparent, as well as its role as the gateway to China. Traders on the floor exchange information back and forth while others call down to the HKEx trading floor, transferring messages as quickly as they hear them. The whole market seems to revolve around numbers, but it actually depends on information. One afternoon, news broke that PetroChina, mainland China's biggest producer of oil, had made the largest crude oil discovery in a decade. Traders buzzed, and the PetroChina stock became a hot commodity within a matter of seconds. "There are many companies and great stocks [on the HKEx], which need exposure out here. [The HKEx] gives exposure to China through Hong Kong...You cannot ignore China as an emerging market," a trader said. According to those who conduct daily business with the exchange, the HKEx is doing very well. "The Hong Kong stock market keeps getting better and better," one trader at HSBC noted, while another commented, "The HKEx is held in high esteem". It seems the history of the HKEx has provided a good foundation for its future.

Visiting the Exchange The Hong Kong Exchange Trading and Exhibition Hall Complex welcomes visitors. The complex re-opened in April 2006 after undergoing sweeping renovations and received about 20,000 visitors from May to December 2006. The new Trading Hall has 294 dealing desks. The atmosphere is calmer than the NYSE, since most trading here is done electronically, but a visit to the hall is still a peep into the financial centre of Hong Kong. 1/F, One and Two Exchange Square, Central. $20 per person. Enquiries: 2840 3855 or www.hkex.com.hk

Culture of Stock Market Speculation Hong Kong has a culture of short-term stock market speculation. Many say that this is linked to Hong Kong's love of gambling and desire for immediate returns. Whatever the reason, Hong Kongers keep up with their stocks.

Hot Stocks

Stock Name Stock Code Bank of China 2388 Cheung Kong Holdings 1 China Construction Bank 939 China Life Insurance 2628 China Mobile 941 HSBC Holdings 5 Hutchinson Whampoa 13 ICBC 1398 MTR Corporation 66 PetroChina 857

Timeline

1891 The Association of Stockbrokers was formed 24 Nov 1969 The Hang Seng Index (HSI) was made public 1983 The Hong Kong dollar was pegged to the US dollar at $7.80 2 Apr 1986 The Trading Hall for the unified Stock Exchange of Hong Kong opened and trading began Jul 1992 The first Hong Kongincorporated mainland enterprise lists its shares through an IPO on the Stock Exchange 2 Jul 1997 Beginning of the Asian Financial Crisis on the day after the handover 14 Aug 1997 Market capitalisation reached record high of $4,758 billion 23 Oct 1997 Hang Seng Index dropped to a low of 9766.72 points 28 Aug 1998 Daily turnover reached record high of $79 billion 6 Mar 2000 The Stock Exchange, Futures Exchange and the Hong Kong Securities Clearing Company merged as wholly owned subsidiaries of HKEx 27 Jun 2000 HKEx was listed with the stock code 388 2004 Turnover broke its own 1997 record, reaching a record high of $3,974 billion 15 Jul 2005 Market capitalisation reached a new record high of $7,085 billion 7 May 2007 The HSI soars to 21,070.21. Turnover was $39.86 billion. The HKEx is the biggest market after London for IPOs