Hong Kong finds a new calling after Liberation Day

Shuli Ren, Bloomberg

Small, open economies get nervous when superpowers clash. Ironically, Hong Kong, whose status as a global financial hub has lost some shine over the years, is finding its feet again.

The city’s latest calling in the middle of the US-China trade war? Provide financing for Chinese businesses that want to go global and become multinationals.

Equity offerings are picking up lately. Chinese EV battery giant Contemporary Amperex Technology Co., or CATL, raised $4.6 billion last week, brushing away market concerns over a Pentagon blacklisting and US congressional scrutiny. About 90% of the proceeds will be used to fund planned expansion in Europe. Jiangsu Hengrui Pharmaceuticals Co. is next in line, seeking up to $1.3 billion. As much as 15% of the proceeds will be used for the construction of new production and R&D facilities overseas.

These two listings showcase the depth and breadth of the investor pool in Hong Kong. CATL shares opened 13% higher in Hong Kong trading debut Tuesday, while Hengrui stopped taking orders from institutional investors earlier than planned on the back of strong demand. When CATL decided to exclude onshore US institutions from the offering, European asset managers filled the void. As a result, the EV battery manufacturer’s Hong Kong listing came with only a slim discount to its Shenzhen-listed share price. Meanwhile, the Hengrui deal has an impressive lineup of cornerstone investors, including Singapore sovereign fund GIC. The retail portion of this listing is already 27 times oversubscribed

In Hong Kong, companies that make inroads with international expansion are well rewarded. Shares of EV maker BYD Co. hit record highs this year as it continues to outpace Tesla Inc. in sales. Pop Mart International Group Ltd., whose Labubu toy has taken Southeast Asia by storm, more than doubled in market value. Overseas sales accounted for almost 40% of the total last year, versus 10% in 2022.

There’s also the belief that as global investors start to “Sell America,” triggered by President Donald Trump’s unpredictable trade policies, portfolio flow will inevitably return to Hong Kong. The cost of margin financing, for one, has tumbled in recent days.

In China’s business world, going global and opening factories abroad has been a prominent trend. Companies’ share of overseas sales rose to 10.7% in 2022, versus 9% in 2018 when Trump started his first trade war, according to Bernstein Research.

We are still at the opening innings, however. Japan, which went through a similar economic trajectory as China, has managed to create almost half of its economy outside its borders. About one-third of revenue from companies on the Topix Index originates abroad.

So imagine a new value proposition for Hong Kong. For decades, global investors parked their money in the city, seeing it as a gateway to China’s economic miracle. While faith in that growth haven has evaporated, the belief is unshaken that the world’s second-largest economy still boasts some great companies whose operational efficiency and speed of innovation are sharpened by hyper-competition at home. When these firms tap in to new markets, they will have a reasonable chance of success.

Hong Kong, in turn, will be the global stage that introduces these new multinationals. The city’s story is not over yet.

[Abridged]

Courtesy Bloomberg/Shuli Ren