HONG KONG — Hong Kong's stock market chief predicted Thursday that mainland Chinese investors will one day be able to take part in yuan-denominated IPOs following further moves by Chinese regulators aimed at promoting the city as a yuan hub.
Hong Kong Exchanges and Clearing's Chief Executive Officer Charles Li said that letting mainland Chinese invest in a stock offering at the same time as other investors would eliminate the risk of a price bubble and was the most "politically feasible" method.
A Chinese regulatory official said earlier this week that the country would loosen restrictions to encourage mainland Chinese companies to hold yuan stock listings in Hong Kong, which held the crown for the world's biggest initial public offering market for the third straight year last year. Companies raised $36.1 billion in 2011, beating out New York for the top spot.
Chinese stock market investors are currently restricted to so-called A-shares traded domestically in Shanghai and Shenzhen. Otherwise, they have few opportunities to invest their cash.
A plan in 2007 to allow mainland Chinese to invest directly in Hong Kong's stock market sent the benchmark Hang Seng Index to a record high as Hong Kong investors anticipated a wave of pent-up cash flowing in from the mainland. But the plan was shelved.
Hong Kong is a special administrative region of China with a separate legal and financial system and its own currency, the Hong Kong dollar.
Li said that by allowing Chinese investors to get in on an initial public offering or secondary share placement, "they're not going to suffer because stock has already been bid up by people waiting for them to come."
Letting mainlanders invest in stocks denominated in the steadily appreciating yuan would also eliminate any exchange rate risks, he added.
Li gave few details or a timeframe for his predictions, which he said would be the likely natural outcome of measures to ease restrictions on listings by Chinese companies in Hong Kong announced this week by Yao Gang, vice chairman of the China Securities Regulatory Commission.
Beijing is promoting the international use of its currency, also known as the renminbi, as well as Hong Kong's role as an offshore yuan trading hub. In April, the city held the world's first yuan-denominated initial public offering outside of mainland China, a $1.6 billion offering for Hui Xian Real Estate Investment Trust.
In a major shift for the exchange's business focus, Li also outlined a plan to expand into commodities trading.
China's demand for commodities presents a major growth opportunity for Hong Kong's exchange as its traditional equities business matures, he said. But the exchange must act quickly to come up with products that meet the needs of Chinese commodity producers and consumers before it's overtaken by mainland and international markets developing their own.
If "international players find out a way to satisfy China's unique needs ... Hong Kong is forever left out of that opportunity," Li said.
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