What it means
The exchange is operated by a listed company, Hong Kong Exchanges and Clearing, commonly shortened to HKEX. It runs the cash market for shares, a market for derivatives such as index futures and options, and the clearing houses that make sure trades are settled properly.
Together these functions let investors buy, sell and hedge in one regulated environment. Hundreds of companies are listed there, from local banks and property groups to large technology and consumer firms from mainland China.
Many international investors use it to gain exposure to Chinese businesses without needing direct access to the mainland markets. The main benchmark is the Hang Seng Index, which tracks the performance of a group of the largest listed companies.
The exchange also connects with mainland markets through programmes known as Stock Connect. These links allow overseas investors to trade eligible shares in Shanghai and Shenzhen through Hong Kong, and mainland investors to buy eligible Hong Kong shares in return.
The schemes have quotas and eligibility lists that can change, so investors should check the current rules. Shares are traded in board lots, which are fixed bundles of shares that vary by company.
Prices are quoted in Hong Kong dollars, and trading costs include brokerage commission, exchange fees and a government stamp duty on transactions. The exact amounts are set by the authorities and exchanges and are updated from time to time.
For business readers, the exchange matters in three ways. It is a place to raise capital through an initial public offering (IPO), a benchmark for valuing similar companies, and a source of market prices for share-based pay and mergers.
Companies that list must meet disclosure, governance and reporting standards set by the exchange and its regulator.
In practice
Real-world examples.
Example
A global fund manager wants exposure to Asian consumer companies and buys shares of a Hong Kong-listed retailer. She holds the position in Hong Kong dollars and tracks the Hang Seng Index to see how it compares with the wider market.
Example
A mainland logistics company plans an initial public offering in Hong Kong to raise money for new warehouses. The listing requires audited accounts, a prospectus and corporate governance rules that reassure foreign investors.
Example
A private investor in Europe asks his broker to buy a single board lot of a Hong Kong bank. He finds that he must buy at least 400 shares at a time, and he adds brokerage and stamp duty to his cost estimate.
Formula
Calculation
Cost of one board lot = Number of shares in the lot x Share price
Total cost = Cost of lots + Brokerage + Fees and stamp duty
Suppose a share trades at 40 Hong Kong dollars with a board lot of 500 shares. One lot costs 500 x 40 = 20,000 Hong Kong dollars. For easy arithmetic, assume an illustrative exchange rate of 8 Hong Kong dollars per $1, which is close to the real linked rate. The lot then costs 20,000 / 8 = $2,500 before brokerage and fees, so an investor buying four lots would pay about 4 x $2,500 = $10,000 plus trading costs.Case study
Seen in the real world.
Jade River Foods is an illustrative, fictional food manufacturer based in a mainland province with annual sales of $300,000,000. The founders wanted to build new factories but found that bank loans were expensive and limited in size.
They chose to list on the Hong Kong exchange and spent a year preparing audited accounts, a prospectus and governance policies. The listing raised $250,000,000 from local and international investors, and the shares became tradeable every day, giving staff and early backers a way to sell.
In this illustrative story the first year was demanding, with quarterly reporting, investor meetings and share price scrutiny. The finance director found that being listed forced the company to tighten its controls, which also made its next bank loan cheaper. The lesson is that a listing raises money but comes with lasting disclosure duties.
Watch out
Common mistakes.
- Assuming you can buy any number of shares, when many stocks trade in fixed board lots.
- Forgetting that prices are in Hong Kong dollars, so the value in your own currency changes with the exchange rate.
- Treating the Hang Seng Index as the whole market, when it tracks only a selection of the largest listed companies.
Questions
People also ask.
What is HKEX?
It is Hong Kong Exchanges and Clearing Limited, the company that owns and operates the exchange, the related derivatives market and clearing houses.
What is Stock Connect?
It is a set of links that lets eligible investors trade selected shares across Hong Kong and mainland exchanges through their local brokers.
Can a foreign company list in Hong Kong?
Yes, subject to meeting the exchange's rules on financial track record, governance and disclosure, and many overseas companies have done so.
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