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China Stocks & The Hong Kong Stock Exchange

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HKEx_Logo(Oct. 13, 2009 - Barath K.) The Hong Kong Stock Exchange was formed in 1947 after the Second World War. Rapid growth of the Hong Kong economy led to the establishment of three other exchanges - the Far East Exchange in 1969; the Kam Ngan Stock Exchange in 1971; and the Kowloon Stock Exchange in 1972. Pressure to strengthen market regulation and to unify the four exchanges led to the incorporation of SEHK, the Stock Exchange of Hong Kong Limited in 1980. The four exchanges ceased business on 27 March 1986 and the new exchange commenced trading through a computer-assisted system on 2 April 1986. As of 31 December 2007, the Hong Kong Stock Exchange had 1,241 listed companies with a combined market capitalisation of $2.7 trillion4

3.1. Types of shares: H-share companies are companies incorporated in the People's Republic of China and approved by the China Securities Regulatory Commission for a listing in Hong Kong. Shares in these companies are listed on the Stock Exchange, subscribed for and traded in Hong Kong dollars, or other currencies, and referred to as H shares. A red chip company is a company that has at least 30 per cent of its shares in aggregate held directly by Mainland China entities, or indirectly through companies controlled by them, with the Mainland China entities being the single largest shareholders in aggregate terms.  Alternatively, a company would be considered  a red chip company if less than 30 per cent but more than 20 per cent of its shares are held  directly or indirectly by Mainland China entities  and there is a strong influential presence  of Mainland China-linked individuals on the company's board of directors.  Mainland China entities include state-owned enterprises, and entities controlled by provincial and municipal authorities.

The most important difference between a red chip company and an H-share company is that a red chip company is not Mainland-registered5.

3.2. Listing requirements:

Main Board

GEM

A Main Board new applicant must have a trading record of not less than three financial years and meet one of the following three financial criteria:

1.

Profit Test

2.

Market Cap/ Revenue Test

3.

Market Cap/ Revenue/ Cashflow Test

Profit Attributable to Shareholders

At least HK$50 million in the last 3 financial years (with profits of at least HK$20 million recorded in the most recent year, and aggregate profits of at least HK$30 million recorded in the 2 years before that)

-

-

Market Cap

At least HK$200 million at the time of listing

At least HK$4 billion at the time of listing

At least HK$2 billion at the time of listing

Revenue

-

At least HK$500 million for the most recent audited financial year

At least HK$500 million for the most recent audited financial year

Cashflow

-

-

+ve cashflow from operating activities of at least HK$100 million in aggregate for the 3 preceding financial years

A GEM new applicant must have a trading record of at least two financial years comprising:

i.

A positive cashflow generated from operating activities in the ordinary and usual course of business of at least HK$20 million in aggregate for the two financial years immediately preceding the issue of the listing document

ii.

Market cap of at least HK$100 million at the time of listing

3.3. Performance:

The Hang Seng Index (INDEXHANGSENG:.HSI) is the main index of Hong Kong stock exchange representing the performance of 45 largest companies that constitutes 67 % of the market capitalisation. First published in 1964 with a base point of 100, the index reached 10,000 in 1993, peaked at 31,900 levels in october 2007, fell back to 15,000 levels in october 2008 and it is now (October 2009) trading at 21,000 levels.


References:

1. "Legg Mason Seeks China License to Trade Yuan-Denominated Stocks". Bloomberg. 2009-03-10. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aM4E27602pNU. Retrieved 2009-03-10.

2. "Merger talk spurs B-shares". International Herald Tribune. 2006-09-18. http://www.iht.com/articles/2006/09/18/bloomberg/sxchib.php. Retrieved 2009-01-21.

3. http://www.szse.cn/main/en/aboutsse/sseoverview/

4. http://www.hkex.com.hk/index.htm

5. http://www.hkex.com.hk/invedu/faq/list_gen.htm

*conversions to U.S.D are based on exchange rate as on 5th October, 2009.

 

 



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