Leveraging China and RMB Internationalisation Goldman Sachs Luncheon Presentation Charles Li Chief Executive, HKEx 28 September 2010
4 0 0 3 0 0 2 0 0 1 0 0 0 First Phase: Primary Market Has Driven Growth Fuelled by Mainland Listings IPO Funds Raised Market Capitalisation Average Daily Equity Turnover 42% 83% 77% 21% 58% 58% 26% 72% 69% In HK$bil 248.2 150.5 In HK$trn 17.9 17.9 In HK$bil 46.7 45.0 17.1 4.7 7.2 1999 2009 YTD Aug 2010 1999 2009 Aug 2010 1999 2009 YTD Aug 2010 Mainland-related enterprises Non-Mainland-related enterprises Continued Mainland IPO Flow Expected 2
International Listings A New Growth Driver Key Drivers Examples China China / / Asia Asia Nexus Nexus Becoming Becoming a a Global Global Natural Natural Resources Resources Listing Listing Centre Centre US$2.2bil Russia US$393mil Canada Spin-offs Spin-offs of of Chinese Chinese / / Asian Asian Subsidiaries Subsidiaries Growing Growing Regional Regional Investor Investor Base Base US$2.5bil US US$1.9bil US Transparent Transparent and and Efficient Efficient Listing Listing Regime Regime US$783 mn France UK 3
Follow-on Offerings Consistently Increase Float (HK$ billion) 642 591 525 61% 51% 427 36% 282 302 305 214 85% 66% 45% 64% 49% 51% 111 72% 39% 64 49% 53% 55% 60% 34% 40% 47% 28% 15% 2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan-Aug 2010 IPO 26 52 59 97 166 334 292 66 248 151 Follow-on 39 59 155 185 136 191 298 361 394 154 Source: HKEx 4
Stable Cost Base Provides High Operating Leverage (HK$ million) Revenue and other income Operating expenses Profit attributable to shareholders 8,602 6,169 7,549 7,035 5,129 4,704 4,174 2,312 2,407 1,998 2,029 1,813 1,331 1,179 1,165 1,224 1,156 883 734 589 693 1,057 2,712 2,518 1,340 1,145 1,211 1,412 1,621 1,493 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Note 1: Results of prior years have been restated to comply with the latest HKFRSs. Note 2: Includes one-off gains on disposal of an associate and properties, and share of profits less losses of associates. Source: HKEx Annual Reports 5
Second Phase: Internationalisation of the RMB and Hong Kong s Role 1. Why does China want to internationalise the RMB? 2. Why is Hong Kong the Offshore RMB Centre? 3. What are the three critical steps? 4. How big is the opportunity? 5. What does it mean for HKEx? 6
1. RMB Internationalisation - Objectives and Issues Objectives Aspiration to global reserve currency Encourage use of RMB offshore Reduce growth of foreign currency reserves Redenominate a portion of current account (trade finance) into RMB Issues Capital account and convertibility constraints Potential impact on domestic economy Controlled Internationalisation of RMB is a landmark experiment 7
2. Rationale for Hong Kong s Role China has designated Hong Kong as the official offshore RMB Centre 8
3. Three Critical Steps 9
3. How Do We Build Critical Mass? PBOC CSRC HKMA More RMB CBRC More Players Opening Up More RMB Products HK Gov t Chinese Banks Better Infrastructure SFC HK Banks HKEx 10
3. RMB Internationalisation - Policy Change Accelerating US$17.7 bn quota 89 institutions approved RMB103.7 bn in retail deposit as of July 2010 US$64.1 bn quota 81 institutions approved PBOC signed RMB800 billion worth of currency swap agreements with 8 central banks HK banks can open RMB accounts for corporates & institutions Mini QFII (Expected) QFII scheme RMB retail business for HK banks QDII scheme RMB bonds by Mainland financial institutions in HK RMB crossborder trade settlement pilot scheme Launch of RMB Corporate Bonds - Sinobonds Expansion of Trade Settlement PBOC Interbank Lending Agreement 2003 2007 2008 2009 2010 11
3. Offshore RMB Liquidity Gaining Momentum RMB Deposits Cumulative RMB Trade Settlement Source: HKMA Source: PBOC yet less than 2% of total Hong Kong deposits and less than 1% of China s 2009 trade 12
3. Roadmap of Internationalisation of RMB OVERSEAS Payment in RMB for imports/ Channel is available but lacks liquidity M Liquidity support Growth Phase Overall Objective A I N L A Convertibility: 20K/Day Interbank bond market Mini QFII Formation Phase Deposits Insurance Funds Sovereign bonds Corporate bonds Interest rate products Stocks Index futures Active Trading To re-denominate trade settlement & trade finance in RMB N D RMB FDI Receipts in RMB from exports/ Channel is available but lacks liquidity 13
4. Potential Size of the Opportunity 14
5. HKEx RMB Strategy HKEx is laying the foundation to capture a second transformational opportunity Lobby for policy change Set up RMB infrastructure Expand Mainland Market Data Develop RMB Products Facilitate Mainland Connectivity Pursue OTC Clearing 15