Name: Innovation Forum 2024: Hong Kong’s Next Chapter
Uploaded: 2024-03-27
Duration: 17 min 23 s
Description: Bonnie Y Chan, Chief Executive Officer, Hong Kong Exchanges And Clearing Limited In Conversation With Clay Chandler, Fortune

Bonnie Y Chan, Chief Executive Officer, Hong Kong Exchanges And Clearing Limited In Conversation With Clay Chandler, Fortune

Innovation Forum 2024: Hong Kong’s Next Chapter

Conferences

Well, it is uh a real honor to have uh Bonnie Chen uh with us uh here this morning. Um Really delighted that you agree to make time for us. Bonnie uh Among her many uh distinctions is uh as, as Joe mentioned, the first female CEO uh of the uh Hong Kong uh exchange, I think that's worth applauding. Um And she's really uh extraordinary because she brings both legal knowledge and uh a breadth of knowledge as an operator of the actual exchange itself, the nuts and bolts, the technology, all of that, she's been deeply immersed in it at her role uh at the exchange to date. So um I want to start if I can just picking up on your, you know, being the first woman to run the exchange on this question of gender diversity uh at, at companies that trade on the exchange in Hong Kong. And I know this came up in the breakfast this morning, the most powerful women's breakfast. But since uh for the benefit of the men who weren't in that audience, I'd like to talk about that a little bit more. Now, there are something like 20,600 companies or so on the Hong Kong Exchange, as I understand it, about 500 of them. Tell me if my numbers are wrong are all male boards that the percentage of female directors on those companies is still somewhere around 16 17% compared to uh markets like uh you know, New York and London where it's over 30%. And even in Asia, I was reading that even Malaysia has a higher percentage than, than, than that, which is interesting. Um Can you, and you've been very actively involved in trying to uh bring Hong Kong up to global standards? And I wonder if you could talk a little bit about that, why you think it's important and, and what you're doing to change it? Thank you Clay. Very happy to answer that question. So, first of all, I don't think I need to talk about the benefits of diversity. I think by now it's well understood, you know, by all the men and women in this room. So let's talk about our journey in terms of advocating uh and uh bringing more favorable conditions uh to allow a higher participation by women on the boards of companies listed on our exchange. So like you said, we have 2600 you know, plus companies uh on our exchange at the moment, the journey actually started many years ago uh in 2019. Uh that was the year when we first made it a requirement for all the listed companies on our exchange to have a board diversity policy because it's always about, you know, tone from the top, you need to the board to start thinking about the issue before changes uh can happen. Uh And we looked at it, um, we didn't like the results because it was, you know, to be honest, a little too slow. Uh, in 2020 when we review the number of uh female directors on our uh on, on the boards of all the listed company, the percentage was at 14.6 which is a low number compared to, you know, like you mentioned in a lot of other markets, we are talking already 30% and above. So we discuss internally what can we do right to make a real difference and really uh uh you know, uh turn it out. Uh And we took a very unusual step, I would say uh many markets have their own ways of doing it. Um We became the first international exchange to actually make it a mandatory requirement to end single gender boards. And that was a rule we introduced in 2022. Um and we put together a grace period. Uh which means by the end of this year, 2024 all listed companies on our exchange uh must not have a single gender board. Now, when we introduced that rule, uh the number was standing at around 808 100 companies still with a single gender board that was about a year ago. Um By now, the number is slightly below 500 still still 500 more to go. But we are, we are hopeful because uh the, the A GM season is coming up. So usually that's the time around uh April and May is when um listed companies appoint new directors to their board. So hopefully by the end of this A GMC, we're going to uh see all companies on our exchange uh being compliant with the requirement. Now, we still have to think about how to punish those who remain non compliant by the end of the year. But that's a different topic. So we, we, you know, happy with the progress which has been made. What we really want to accomplish is um I would say this is really just a catalyst. I think once um companies start bringing more diversity into their boards, they will begin to realize the benefits of doing so and once they have done it, uh they, the benefits, that's when regulation actually can take, you know, a step back and, and let you know companies and, and board directors um do their their own journey. You haven't made any decisions yet about whether there will be financial panel or, I mean, you're not thinking of king these companies off the, off the exchange or anything like that. Well, we, no, I I think for a start, there will be some naming and shaming, that's important. I also think investors have a role to play because, you know, we we now uh obviously we are in dialogue with a lot of the stewardship, you know, around the world and investment funds and all that and, and you know, in the investment policy, they are now very focused on uh indicators such as diversity, right, that will dictate how they want to deploy capital. So I think while, you know, we can impose a rule, um companies will very quickly realize that, you know, they, they, they have to get on to the journey. Hm. Um ju just one more question quickly on this. Um I've asked a lot of people who are on the boards of companies to trade on the exchange, you know, why, why are you not in compliance, what's going on? And I hear a variety of different explanations and I, you know, sometimes people say, oh, well, it's a cultural difference. You can't really, you know, compare us to London or, or New York. And then some people say, well, it's because state owned enterprises and that's a different, you know, kind of mode for appointing directors at, at, at state owned enterprises. And then the other one I hear which I find really just incredi incredible and infuriating is, oh, we can't find good talent right? There are not enough uh qualified women to be on boards. Oh, we tried so hard. We couldn't find one. Do you do any of those explanations? Make sense to you? Uh Not really. I think they just need to look harder. Right. In the case of Hkex, we are a listed company. Um, we have 13 members on the board and you know, among the 13 of them, five are women. I don't think there was any difficulty in terms of identifying qualified women uh, to be on the boat. And actually to this comment, I always remind people, it's not, it's not AAA one way, you know, thing, it's a two way thing, right? So while companies may think that, oh, you know, there are no, no qualified women uh to sit on my board, they need to also realize that the women, you know, who are looking for directorships, they also have a choice. I mean, they are doing their own due diligence, they want to only join boards that they think it's worthwhile their time to do it, right? So maybe when these companies express AAA, you know, a thought that they are having difficulty recruiting women, they should really uh maybe do some, some self reflection, well said, well said, um so let's talk about the, the exchange in the markets a little bit if we can. Uh and I wanna be the first to stipulate that uh you know, I recognize that just because you're the boss of the exchange now doesn't mean that you control macroeconomics or geopolitics and you can't really determine whether the markets go up or whether they go down. But you're coming in at a very tough time. What was already a big, big job? I mean, just looking at some of the numbers of the hans and, you know, the end of last year had a 13 year low. The stocks have plunged for four years straight. Hpkex profits down almost 30% last year. The share price down 18% and we can talk a little bit about the IP pipeline and the difficulties there. But it's uh I guess one way of looking at it is saying, you know, you're coming in at the bottom of the market. But is it, I don't know, tell us what you expect for 2024 in terms of market. Well, I won't be able to tell you whether we have or not, but I would say, I think you're absolutely correct. There are a lot of challenges in front of us, but at the same time, I see even more opportunities. Ok. So why do I say that now if we take a very short time horizon? Yes, indeed. The last few years have been very challenging uh capital markets, especially in this interest rate environment, um struggles and it's not, I mean, it's a global phenomena. Uh Hong Kong is no exception. However, if one were to take a longer term view, uh I, I really see a lot of opportunities because at the end of the day, obviously in Hong Kong and for HKX, uh we always take pride in the fact that we are super connector. And when we say being you know, a superconductor, what are we exactly connecting you go to the very basics of an exchange is connecting capital with opportunities. So whoever has the money with the, whoever needs the money, right? You match them. And in the case of Hkex, we are very uniquely positioned because we are also a superconductor between China and the world. And so um if you were to take a longer term horizon uh in assessing this um you know, situation, I personally feel that, you know, we're still seeing a lot of growth coming out of China. Um you know, the latest uh uh forecast from the two sessions is that 5% for this year, you know, for an economy, which is the second largest in the world, that's a huge number, that's a huge number. And what is, you know, if you think about this 5% it's about, I mean, you're talking about a lot of companies which are still, you know, growing, right? I was listening very carefully to the previous few panels, whether they are talking about A I or other types of innovation. You know, there are just so many exciting companies uh still trying to um you know, figure out new products come up with new inventions and this will be a very strong supply of issuers down the road on the investor side. Uh I would say that the world is still very underweight in China. So if you think about foreign investors holding in um the Asia market at the moment, it's only about less than 5% of total market cap. I mean, compare that with Japan, for example, which is the third largest economy in the world, foreign investor holding is above 30%. Ok. So you know, I'll leave you guys with a thought. Um whether you believe the, you know, global investors are going to continue to keep their investment in China and the allocation of capital at a below 5% or they're going to eventually see the potential, see the growth in China and increase the allocation. Let me ask you quickly about what's happening with IP OS again, you know, last year tough for IP OS uh about 70 IP OS in Hong Kong, but the kind of uh net funds raised something like $5.7 billion. That's way down from previous years. Uh You dropped to Hong Kong dropped to about uh I think it's the eighth or ninth in the sixth in the global League table. Uh uh down from, you know, number one as recently as 2019. Um So what's um and uh you know, a little bit discouraging that we saw San uh kind of bail out of its plans for an IP O A lot of companies that would like to go public. Don't feel like they can do it in this market. Uh Are we going to have a better year this year? Do you think in the IP O? OK. To answer that question, you know, let's think about why the IP O market has been um somewhat muted in the last couple of years. Um Obviously, macroeconomic conditions, uh geopolitics have something to do with it. Uh interest rate environment also played a part uh what we have seen and you mentioned the figures of 73 is the total number of IP OS that was completed in Hong Kong last year in 2023 compared to 90 in 2022. Now. So in terms of the number of IP OS, the drop is not not that significant. However, fundraise like you said, has dropped two thirds compared uh if you compare 2023 to 2022. And it's understandable because, you know, we all know that uh valuations have come down quite significantly and this is a global phenomenon. So when you talk to entrepreneurs, I think a lot of them are still very keen to do the IP O and provide that exit venue for the pre IP O investors. However, they just don't want to sell their stock cheaply, right? So what we saw last year was uh in a lot of cases, companies still going ahead with their listing, but you know, they try to do a smaller IP O and uh hope, you know, they, they're just waiting for the right conditions to arrive and then they can do the follow on offering. And in the case of Hong Kong is pretty simple, you just do an overnight block trade. Now, if we sort of look at it in a broader context, and you mentioned the fact that, you know, we have dropped a few notches, you know, in the um uh globalized po league tables, what we have seen in the last couple of years is also a phenomena whereby a lot of companies around the world, they have chosen to live in the domestic market. Now, I don't know whether this is because of nationalism maybe or uh COVID actually had a part to play because, you know, I mean, traveling wasn't that easy. So uh that's why the league table in the last two years, you see a few uh especially Asian exchanges emerging and taking the the top few spots. However, as these companies continue to grow, uh they may reach a point where they, they have a need to tap deeper markets. Um And they may actually find that their domestic markets may not be able to uh support their fundraising needs. And that's when they may look to other global exchanges to do their, their second listing or their dual primary listing. And that's why we're investing a lot of time and energy uh to plant the seeds. Um You've seen that we, over the last year or two, we've signed a lot of mo us with, you know, uh quite a number of exchanges both in Southeast Asia and the Middle East. Um We have open offices in uh London as well as New York. We already have a uh an office in Singapore and, and this is really to set the stage and we are actively talking to a lot of issuers around the world would believe when um market conditions are more favorable, we should be quite well positioned to capture them. You've had some success with that so far, Prada. Um The what for the yacht maker? Um uh to name a few, but you're looking for uh a, a much bigger contingent of, of uh non Chinese for firms to come in the list. Yes, absolutely. And, and uh I think the last wave of international companies which came to Hong Kong, a lot of them are brand name companies, consumer, consumer space. Uh What we're very focused on. Uh it's really attracting the new economy companies we have already over the last few years, uh made significant improvements in our listing regime so that pre revenue, pre profit companies like the biotech space and the specialist technology space can achieve a list listing in Hong Kong. Um We believe that and we have seen a proliferation of these companies around the world, right? And these will all make very, very interesting candidates down the road. Um you know, to, uh you know, as IP O candidates. So we're very, very focused on, um speaking to them. That's really uh fascinating. I we'll have to leave it there. But uh I wanna wish you every success as you begin this new endeavor. I know there are a lot of people in the city who feel that they have a, a vested interest in that success and are wishing you uh very well. So we'll see how the year of the dragon uh continues to unfold. But thank you so much, Bonnie Chan for uh joining us. Thank you.