Frequently Asked Questions 
19/08/2016 
 

Chapter 3

Overview of the HKEX Markets


3.1

What is the investor mix in HKEX’s markets?    

According to the most recent surveys by HKEX, local and overseas investors have similar contribution to the total turnover in the Hong Kong securities market.  Among local investors, institutional investors and retail investors each account for about 20 per cent of the total turnover.  Overseas investors, mainly institutional investors, represent about 40 per cent of all securities turnover.  Overseas institutional investors are the largest contributor to the market turnover.  This reflects Hong Kong is a developed and international market which has attracted investors from around the world.

In the Hong Kong derivatives market, about 50 per cent of turnover is Exchange Participants’ principal trading, which comprises market maker trading and Exchange Participants’ proprietary trading, or trading for their own account. Overseas institutional investors and local retail investors account for 22 per cent and 17 per cent of the total derivatives turnover respectively.

In both the securities and derivatives markets, there is a relatively high participation from overseas investors.  They are mainly from the US, the UK, other European countries, Mainland China and Singapore.

HKEX conducts cash, or securities, and derivatives markets transaction surveys annually.  The surveys are available at “Research Reports” under “Statistics & Research” section of the HKEX website. Investors may refer to the surveys for a better understanding of the participants in Hong Kong's securities and derivatives markets.

 

3.2

Which indices are generally used to track the performance of the Hong Kong stock market?

Hong Kong stock market performance is gauged by various indices, including the Hang Seng Index, the S&P/HKEX LargeCap Index, the S&P/HKEX GEM Index, the FTSE/Xinhua indexes and the MSCI indexes.

The Hang Seng Index, complied by Hang Seng Indexes Company Limited, is most widely used in Hong Kong to reflect the performance of the stock market.  The index is reviewed by the company on a regular basis and is currently composed of about 40 stocks representing approximately 60 per cent of the market capitalisation of the Main Board.  As the Hong Kong market developed, a series of indices based on issuers’ regions and industries and the liquidity of their shares emerged to reflect the performance of various types of stocks listed in Hong Kong.   These indices such as the Hang Seng China Enterprises Index, the Hang Seng China H-Financials Index and the Hang Seng China-Affiliated Corporations Index.  For information about the Hang Seng Index series, please visit the Hang Seng Indexes website at www.hsi.com.hk.

The S&P/HKEX LargeCap Index is composed of 25 stocks representing about 75 per cent of the total market capitalisation of the Main Board.  Designed to track the performance of shares listed on GEM, the S&P/HKEX GEM Index has no fixed number of constituents but each of its constituents is subject to strict liquidity requirements.  For information about the S&P/HKEX index series, please visit the Standard & Poor’s website at www.standardandpoors.com.

 

3.3

What are the different features of the Main Board and Growth Enterprise Market (GEM)?  

The Main Board and GEM comprise the HKEX securities market.  They provide a marketplace for capital formation by different types of companies.

Main Board companies are generally larger and have a longer history and a profit record.  Those without a profit record satisfy alternative financial tests. 

GEM was established in November 1999 to provide capital formation opportunities for growth companies of all industries.  GEM was repositioned in July 2008 as a second board and a stepping stone to the Main Board.

The listing requirements for both the Main Board and GEM are posted at “Rules and Guidance on Listing Matters” under “Rules & Regulations” on the HKEX website.  The Listing Rules for the Main Board and GEM are subject to amendment from time to time.     

 

3.4

What are the notable differences between the Hong Kong and Mainland securities markets?  

The two markets differ in many aspects, including:

1.

The Hong Kong market is more international and has more institutional investors.  Institutional investors from Hong Kong and overseas account for about 65 per cent of total turnover.  As investors in different markets differ in their judgments about securities valuation and market prospects, investors should exercise prudence when participating in the Hong Kong securities market.
 

2.

The Hong Kong market offers greater product choices to cater for investors with different risk preferences. The products include equity securities, equity warrants, derivative warrants, Callable Bull/Bear Contracts, or CBBCs, Exchange Traded Funds, or ETFs, Real Estate Investment Trusts, or REITs, and debt securities.

The two markets also differ in trading arrangements, for example:

1.

The Mainland’s circuit breakers trigger the suspension of trading in shares of companies when their prices move beyond a certain limit. In the case of Hong Kong’s Volatility Control Mechanism (VCM), a five minute cooling-off period is triggered if the price of an applicable security deviates more than ±10% away from the last traded price five minutes ago.  During the cooling-off period, trading is allowed within a pre-defined price band.  Normal trading without restriction will resume after cooling-off period.  VCM in the securities market is only applied on all Hang Seng Index and Hang Seng China Enterprise Index constituent stocks as well as only applicable to board lot order input during certain periods of the Continuous Trading Session. Hong Kong law forbids trading suspensions by Hong Kong’s stock exchange in the absence of orders given by the Securities and Futures Commission in consultation with Hong Kong's Financial Secretary.

2.

In Hong Kong, screens displaying quotations for stocks whose prices are rising are in green while those for stocks with falling prices are in red.  The reverse applies on the Mainland, rising prices are shown in red and falling prices in green.

3.

Transactions in the Hong Kong market are usually denominated in Hong Kong dollars, while those in the Mainland are usually in renminbi.

4.

In Hong Kong, dealers may engage in day trades for clients, meaning securities may be sold on the same day they are purchased.  On the Mainland, with a few exceptions like ETFs and warrants, securities must be credited into an account before they can be sold.

5.

In Hong Kong, the settlement cycle for securities settlement between the clearing house and brokers is T+2. However, all settlement arrangements between brokers and clients are commercial agreements between the two parties.  Investors should check the arrangements with their brokers before entering into a transaction.  For example, they should enquire if purchases require immediate payment and when proceeds from a share sale can be received. On Mainland, the settlement cycle for securities settlement is usually T+1. Moreover, investors are required to pay in full in advance for buy orders and to have sufficient securities in the custody of their brokers for sell orders.

6.

The Hong Kong securities market allows investors to hold physical certificates after purchases.  Such practice is not allowed in the Mainland securities market.

 

3.5

In what ways are H-share companies different from red chips?  How can investors obtain the lists of the companies?

H-share companies are companies incorporated in Mainland China and whose listings in Hong Kong are approved by the China Securities Regulatory Commission (CSRC).  Shares in these companies are listed in Hong Kong, subscribed for and traded in Hong Kong dollars or other currencies, and referred to as H shares.  After finding its way into the Listing Rules, the term H share has been accepted and is widely used in the market.  The letter H stands for Hong Kong.

Red chip companies are enterprises that are incorporated outside of the Mainland and are controlled by Mainland Government entities.

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

To obtain the lists of the companies, investors may visit the “China Stock Markets Web” under the “Investment Service Centre” of the HKEX website and select Listed Company and then in the Hong Kong column select H Shares or Red Chips Stocks.