HK 'Nasdaq' baked to fill index gap

Editorial | Mary Ma 20 Jul 2020

It has not yet been officially named, but the plan by Hong Kong Indexes Company to establish a local "Nasdaq" platform has already generated great interest in the market.

HKIC has to be creative to give the product a distinct identity to differentiate it from that of Wall Street. If the US Nasdaq's successful constituents like Amazon, Apple and Microsoft are Americans' pride, the SAR version will hopefully also include stocks that Hongkongers are ready to brag about.

Details of the plan are expected to be announced today, but investors have been keen to play guessing games. While the ATMX quartet - namely Alibaba, Tencent, Meituan and Xiaomi - are obvious candidates, the soon-to-be-announced index will have to include many more names in order to represent a sector of increasing importance.

The guessing has expanded to include stocks that are not yet locally listed. These include mainland search engine Baidu, e-commerce platform Pinduoduo and video-sharing portal Bilibili.

Currently listed in New York, they are expected to follow Alibaba to be listed here amid an escalation in Sino-US conflicts.

It would be a promising start if HKIC could find a few dozen credible companies to be included in the Hong Kong "Nasdaq."

The process will take awhile. The US Nasdaq was founded in 1971, and it took nearly half a century to become what it is today. It will also take some time for the SAR version to follow its natural course. Yet its establishment will leverage on the pending return of many mainland stocks from the US.

There have been complaints that the Hang Seng Index has ceased to reflect the market accurately as the index movement is heavily influenced by a handful of tech giants. However, it would be too remote to say HSI will have its significance replaced by the new "Nasdaq."

Nonetheless, this should not prevent a debate on the timing of the launch.

On the upside, it will increase the depth of breadth of the Hong Kong stock market as more Chinese companies leave the US and head for the SAR.

Furthermore, the new economy seems to have been immune from the pandemic, even though traditional industries like aviation and automobiles have taken a battering. Amazon, Netflix and online gaming have benefited from people spending more time at home due to lockdowns.

Nasdaq has outperformed the rest.

The worry is that risks increase as the "safe haven" becomes overcrowded. Stocks have become so expensive that the state of business looks like that of the technology bubble around the turn of the millennium.

The Nasdaq 100 fell over 5 percent last week before closing the week with a 4 percent correction. The ATMX in Hong Kong fell by up to 7 percent before the weekend too.

Although it is still too soon to say for certain, it's probable that investors are shifting capital from an overcrowded shelter to the less-crowded traditional sector.

The plan to create a Hong Kong "Nasdaq" is a long-term shot. While this is a step in the right direction, it is not a process for making hit-and-run bets.

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