Hong Kong, as the third financial market in Asia – it is slightly larger than the French market – is fairly modest when compared to Tokyo. It has recently been overweighted by the Shanghai/ Shenzhen duet, and it faces a fierce competition from Singapore, its regional rival. Its second board, the Growth Enterprise Market (”GEM“) created in year 1999 is generally considered as non-satisfying. Its aim was to allow Chinese hi-tech companies to go public, but it has notoriously been overshadowed by London’s AIM, certainly because GEM imposed too stringent requirements to its potential participants. It is also commonly admitted that Singapore hosts a more sophisticated derivatives market.

Fortunately, HKEX benefited from numerous listings of mainland Chinese companies on its main board, which boosted the place’s market capitalisation. Shares issued by Chinese companies under Chinese law and floated on the HKEX are designated as “H shares“.

However, the most remarkable feature of the Hong Kong financial market is its international openness. It is the Asian leader in this field, ahead of Singapore. The exchange announced this month that it will consolidate its international profile by the July launch of Hong Kong Depositary Receipts (”HDR“). Depositary receipts can be considered as a mean to indirectly list a company’s shares on a stock exchange. As some booming Asian jurisdictions such as Vietnam or Kazakhstan forbid their companies to list directly on a foreign exchange, HKEX will enable companies incorporated in these promising jurisdictions to indirectly list in HK, and therefore access to international investors.

Depositary receipts were created in the US and are known as “ADR” (American Depository Receipts) or “GDR” (Global Depository Receipts), and work as follows:

a. A financial institution buys shares of a foreign company on its national stock market.

b. The same financial institution then issues depositary receipts based on the acquired foreign shares.

c. Buyers of the depositary receipts are designated as “holders in effect” of the shares: they control the shares and receive related benefits such as dividends.

d. The custodian charges a fee for the service.

It is anticipated that HDRs will be traded and settled, and pay dividends in HKD, or in USD.

No wonder new opportunities will flow along the Pearl River Delta.