The continuing growth of the Mainland economy augurs well for Hong Kong as a centre for initial public offerings and other fund-raising activities by Mainland enterprises, Monetary Authority Chief Executive Joseph Yam says.

In his latest Viewpoint article published today on the authority's website, Mr Yam said several large initial public offerings were organised successfully in Hong Kong, with no excessive volatility in the interbank rates and hiccups in the interbank payment system on the payment and refund days.

He said: "One interesting phenomenon observed during the course of the large initial public offering activities in Hong Kong is that, with global financial markets awash with liquidity, whenever there is new supply of quality financial instruments in a market of international standing, attracting international investment funds is not a problem.

"There seems no longer to be any need, for example, to organise primary or secondary listing in Europe and America in order to attract investment funds from those areas. International road shows are of course still essential to stimulate investor interest, but advanced information technology is increasingly making this easier. So I hope these large initial public offerings serve to consolidate the status of Hong Kong as the preferred initial public offering centre for Mainland enterprises."

Great demand

Noting the Mainland has become increasingly integrated with the rest of the world and its economy keeps growing at a brisk pace, Mr Yam said there will be more and more Mainland enterprises achieving success in their own fields and attaining international status.

While this augurs well for Hong Kong as a centre for initial public offerings and other fund-raising activities by Mainland enterprises, particularly those intending to go international, he cautioned that the savings rate on the Mainland is still very high and therefore there is great investor demand there that needs to be satisfied.

"The sustainability of Hong Kong as the initial public offering centre for Mainland enterprises depends, I think, on whether we can satisfy investor demand on the Mainland," he said.

On the dual listing of H-shares and A-shares and their price differential, Mr Yam said the partitioning of a market trading essentially the same financial instrument with the same shareholders' rights undermines the efficiency of the market.

Healthy development

Mr Yam said: "I understand that foreign exchange controls on the Mainland play a part in this process, but it still seems desirable for the healthy development of the market to remove artificial market partitioning. This can be done by special arrangements that would not undermine the foreign exchange controls. The two classes of shares can be made directly fungible, or indirectly fungible by trading depository certificates evidencing the holding of shares in the other market.

"An arbitrage arrangement, perhaps with special approval by the authorities for conducting the associated foreign exchange transactions, can be established to facilitate price equalisation. This may require the involvement of the State Administration of Foreign Exchange and could be conducted by a specially established public organisation on a non-profit basis, conducting arbitrage whenever a significant exchange-rate-adjusted price differential appears. It could also be opened up on a freely competitive basis, under close monitoring by the state administration as far as foreign exchange transactions are concerned."

Mr Yam said if an effective mechanism for arbitrage appears, market expectation would then be strong enough to help bring about price equalisation, lessening the need for actual arbitrage activities.