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Hong Kong’s Secretary for Financial Services and the Treasury KC Chan. Photo: gov.hk

SHAM MARRIAGES make a mockery of matrimony and mar the institution’s integrity.

In the same way, “marriages of convenience” in the commercial world that are joint ventures in name only for providing mutual and ill gotten gains for both participants chip away at the wholesomeness of true JVs, tieups and MOUs.

Amid the current bearish sentiment, bourse authorities in Hong Kong, Shenzhen and Shanghai may set up a body to scrutinize the authenticity of “joint ventures” engaged in various financial sector activities among their ranks to help clean up the system and weed out the fakirs.

Hong Kong Exchanges and Clearing Ltd (HK: 388), the oversight body of the Special Administrative Region’s (SAR) capital market, said it has agreed in principle with the Shanghai Stock Exchange and the Shenzhen Stock Exchange to begin consultations on joint ventures listed in Hong Kong whose intent was to engage in activities including derivative sales and index trading.

A Chinese language piece in Sinafinance reported that a spokesman for the Hong Kong bourse stressed that at present, the three parties had only begun preliminary discussions, but all sides hoped that more focused consultations and a more specific implementation timeframes could be hammered out soon.

The measures come at a time when the Hong Kong bourse is considering allowing more joint venture financial sector firms comprised of partners on both sides of the de facto border separating the PRC from the SAR to form such tieups.

Proposed parameters of operation include administering new sub-indices, derivatives, futures and other capital market products as well as additional activities.

However, the Hong Kong bourse watchdog was cited as saying the idea of cross-border JVs being allowed to establish and engage in the above-mentioned activities is still in the proposal stage and may or may not ultimately be approved.

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“For firms involving Hong Kong capital and PRC-based manufacturing, as well as those conducting marketing in both Hong Kong and the Mainland or conducting cross-border transactions – activities undertaken by an increasing number of companies -- it is often advisable and sometimes necessary to operate as a joint venture operation," says one market watcher. Photo: HKSE

And the same goes for the proposed oversight body which would be in charge of approving or denying applications for future aspirants in this area of growing importance.

Hong Kong’s Secretary for Financial Services and the Treasury KC Chan said establishing JVs that could operate and conduct such activities in all three regional bourses was a “good thing.”

According to a posting from the Hong Kong Stock Exchange, areas of cooperation under consideration include operational parameters of listed joint ventures (JVs), a possible dedicated sub-index to track their valuations and other possibilities.

Following potential investigations by the proposed bodies, the possibility that listed joint ventures could be prevented from listing remains a possibility.

Due to news of developments on this front, market watchers say this had much to do with the major bounceback of Hong Kong’s benchmark Hang Seng Index on Thursday, in particular with the Blue Chip Sub-index with tracks long-established enterprises – the biggest beneficiaries of any bad news concerning new JV startup rivals.

The development’s in Hong Kong’s capital market oversight mechanisms coincides with the previous day’s announcement that the SAR’s collaboration with Mainland Chinese bourses regulatory vetting and approval processes for exchange traded funds (ETFs).

Hong Kong’s Secretary for Financial Services and the Treasury KC Chan was cited by an official SAR government website as saying ETFs – one of the areas of activity proposed for the new cross-border JVs -- offer a “real choice” for Mainland investors who are interested in buying in the Hong Kong market through a means that is accessible to them in their own market.

“We are putting Hong Kong stocks listed as an ETF on their own market, so they have access to them in their market daily, day in, day out, while they are investing in Hong Kong stocks. I believe [they will have a] certain attraction to these investors,” he said.

Mr. Chan said fund-management companies approved by the Chinese securities regulator will be running the ETFs.

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With Hong Kong's benchmark Hang Seng Index in sustained decline, authorities are looking for anyone taking possible regulatory shortcuts, including JVs



He added that the proposal by the Hong Kong exchange to form a body to oversee joint venture’s listing legitimacy will focus on newly formed or planned JVs only, and will have nothing to do the approval process for ETFs looking to list in Hong Kong.

PRC State Council Vice Premier Li Keqiang, after recently visiting the Hong Kong bourse, expressed support for the JV study project, saying he hoped it would get off the ground as soon as possible.

It remains to be seen how deeply and quickly the three sides plunge into this new field of cooperation and joint policing of their ranks.

That being said, market watchers will be keen to see just who takes the lead between two of the top contenders for Regional Financial Center status in Hong Kong and Shanghai.

The story also cited Prudential Securities Associate Director Zhang Zhiwei as saying that existing trading platforms in Hong Kong for interested PRC-based investors are not especially convenient.

“New JVs may be preparing to meet requirements for trading platforms in the PRC, and as these platforms develop, JVs have the potential to become extremely innovative and experimental business models.”

Shenyin Wanguo’s Associate Director Zheng Jiahua said that joint venture models held distinct advantages for some firms.

“For firms involving Hong Kong capital and PRC-based manufacturing, as well as those conducting marketing in both Hong Kong and the Mainland or conducting cross-border transactions – activities undertaken by an increasing number of companies -- it is often advisable and sometimes necessary to operate as a joint venture operation.”

However, Zheng pointed out that the current parameters of JVs are somewhat limited, with scopes of activities mainly related to new product development, or currency-related products.

See also: HK Exchange Chief: ‘Troubled Red Chips’ Not Welcome On HKSE

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