Young Financial Post - January 2016

F

TheYoung JANUARY 2016

Sharing economy heats up in Hong Kong

CONTENT COVER

CHINA

LOCAL

Sharing economy heats up in Hong Kong 4

Young consumer rise to save China’s slowing economy

LOCAL

CHINA

Beacon goes public to snatch share in children education 14 LOCAL

Two-child policy not economy boost but to deepen milk powder shortage in Hong Kong

China’s O2O retailing channels still struggling amid shopping boom

Hong Kong to top world IPO market

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CHINA 12

US dollar strength continues in 2016

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FOREWORD In a world where consumer culture prevails, we are somehow all consumers, and such identity is hard to change along with the economic condition.

To elaborate, we buy more when the overall economy is good as our purchasing power is greater, and we still have to buy even if the economy is bad. We will seek bargains instead of luxuries but we cannot stop consumption.

Just look at Alibaba’s sales figures on the “Double Eleven”, or the US retail figures on the Black Friday: they flourished despite a sluggish global economy.

Such consuming frenzy brings vitality to the cities and is adding color with stimulating new ideas.

In this issue we focus on the consumer sector: our cover story sheds light on sharing economy, a more and more popular way of bargain consumption.

Many new business is created this way in Hong Kong.

We also report on Chinese consumers as well as their impact on Hong Kong and Mainland retailing markets.

Besides, we review the China and Hong Kong equity markets, including their new listings in 2015. And last but not least, the US dollar and interest rates are under our examinations to see how they will perform in 2016.

Finally, Happy New Year and enjoy reading!

Wiki Su Financial Journalism Class Representative LAST ISSUE

FIND US

ISSUU

Last issue is about Survey on entertainment spending habits of Hong Kong Youngsters.

COVER | TYFP

Sharing economy heats up in Hong Kong

By Ian Mak, Kyle Tang, and Hera Poon Edited by Elise Choi and Lydia Lu

Sharing economy is becoming popular nowadays. Nearly 30 per cent of Hong Kong internet users have eight or more engagements in sharing economy since 2014, found by Hong Kong Internet Registration Corporation (HKIRC). International sharing gurus, such as Airbnb and Uber, demonstrated how these new trades invaded Hong Kong markets. Companies with sharing business features are waiting in line to “share” with local customers, and The Young Financial Post has compiled three such examples.

Home chef platforms Home chef platforms had a longer history than other internet sharing platforms as they were originally set up for tourists who want to have a taste of the visiting city’s culinary tradition.

International sites such as EatWith and PlateCulture keep up with the tide and become a case of widespread new sharing economy in Hong Kong. Now they also become alternatives between restaurants and takeaways for locals.

“Sharing Economy overturns traditional business operations’ pattern and concept, it can be found everywhere.

No matter what industry, such as Netflix provides movies rental, ZipCar provides car rental, SnapGoods provides furnishings rental, or Airbnb provides houses rental, they are all practice of sharing economy,” Gregory So Kam-leung, Secretary for Commerce and Economic Development

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Meal sharing platforms connect home chefs and diners.

They provide photos of dishes as well as reviews from previous diners, while diners can read the menus and make their reservations via the platforms. Unlike private kitchens which resembles normal restaurants with rented premises and hired waiters, home chefs make use of existing resources including their residing flats and run business in spare time.

Kennel Kitchen’s slow cook salmon with homemade pasta.

Beef Wellington, one of the signature dish of Chris.

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service charge from the home chefs.

New dining experience is another reason why home chefs catch people’s eyes.

Diners can enjoy food and sharing stories with strangers – these private kitchens usually serve only one table and all diners will be seated together. “It is a brand new and thrilling dining experience which traditional restaurants cannot provide to the diners,” said 22-years-old Louis who tried twice in Competitive pricing meal sharing. is a reason why home chef platforms attract However, related regulations customers. For example, remain unclear since any a four-course meal cost kinds of restaurant should from HK$220 to HK$500 have license issued by the on a home chef platform, authority. According to the while it would normally Food and Environmental ask for HK$700 or more in Hygiene Department, the regular restaurants. license applicant should comply with the food safety, Chris Lee, the host of fire services, and other Kennel Kitchen who requirements in order to be promoted his kitchen a lawful restaurant. on PlateCulture for over half a year, said he The meal sharing business served once a week and has already provoked usually spent most of the the restaurateurs to collected fees on food anger in Europe. Just as ingredients. Only 30 per hoteliers and taxi drivers cent of the meal fee went protested two successful into his pocket, he added. sharing economy Meanwhile, the meal enterprises Airbnb and sharing platforms will Uber, restaurant owners collect 10 to 20 per opposed meal sharing cent of the meal fees as platforms and urged 5

COVER | TYFP

the government stepping in to curb the growth of “illegal restaurants”.

Yet home chefs claimed they are not posing threats to traditional restaurants. “We are not major competitors of the restaurants.

Meal Sharing is a brand new market and both business models can coexist. Hong Kong government should embrace the

Sharing and renting goods with mobile app Gaifong App, a free mobile application which allows people to share or rent their belongings, such as instrument, kitchen tools, home appliance and even smartphones, was launched in February 2015. It was designed by Elliot Leung, who got inspired by worsening

Chris Lee, the host of Kennel Kitchen with half a year experience.

benefits that technology brings to us and work a way out with the meal-sharing businesses,” said Mr Lee. Some restaurant operators do not think home chef platform will affect their business. “It is hard to say that home restaurants will cause serious threat to the traditional restaurants in this early stage, not to mention the tiny apartments in Hong Kong limiting the scales of the business. However, the growth of meal sharing should not be overlooked,’’ said Christine Wong, a local restaurateur.

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inflation in the city.

Gaifong will charge a slotting fee when an item is uploaded for the first time, but further renting or sharing of the same item on the platform will be free of charge.

Elliot spent HK$100,000, which is sponsored by The Cyberport Creative Micro Fund for developing prototype products, for the design of Gaifong.

At first, there were only 400 users and most of them are his friends. However, the operation needs no office, while Elliot and

his two colleagues “stay in McDonalds or public libraries for the works,” he said. He refused to disclose how much he paid his colleagues, but hinted that the company’s shares were among the rewards.

“After running the application for six months, we now have a steady growth of income per month, around 20 to 30 per cent,” Mr Leung said.

Gaifong has accumulated around 2,500 users since its launch. Number of users doubled every two months, most of them are females of around 30 years old. “In the long term, we absolutely hope that all Hong Kong citizens are using Gaifong. But now, we discover that only people around 30 years old like to use it. We guess that people in this age group find it hard to afford goods in Hong Kong as they need to save money for home purchasing. They would rather rent or borrow the other things they need,” Mr Leung said.

Suitcases sharing Rent-a-suitcase, an internet platform providing travel supplies rental services, is another Hong Kong example of sharing economy. The internet platform was established in 2014, and it rents a range of travel equipment including high quality suitcases, GoPro action cameras, SIM cards and accessories.

Rachel Cheung, founder of tyfp.journalism.hkbu.edu.hk

Rent-a-suitcase, said it is a burden for Hong Kong people to store a large suitcase at home that may only be used for once or twice a year, as space has become very precious with the high property prices in Hong Kong.

“Also, it is always the more effective way to share the resources rather than to own the goods as people like to try new stuffs,” she said.

cameras.’’

cost the operator a million of dollars,” he said.

Ms Cheung said she is planning to offer more varieties of travel equipment and expand the service into a peer-to-peer (P2P) platform to allow users to share their belongings among themselves.

However, she opinionated that sharing economy is still in the startup stage with lots of uncertainties in the markets.

Meanwhile, it would be very hard for the government to amend the law for those sharing economy businesses, as it will strongly violate the asset value and the income of the taxi drivers, hoteliers and restaurateurs, which they regarded this as an “unfair competition.”

To make the process easier and convenient, the company provides on-line reservation services.

The customers just need to fill in an online reservation form for the desired equipment. The minimum rental period for all items is three days, while the rental for these equipment are affordable. For instance, renting a RIMOWA suitcase is about HK$70 to 80 per day depending on the size, with the minimum rent at about HK$240 which is only four per cent of the full price of the suitcase.

Regulatory concerns over share economy

Rent-a-suitcase broke even in just a year, and its current net profit is about HK$20,000 per month. The Young Financial Post has visited their store located in a small-sized commercial flat in Causeway Bay. That place is enough for about a dozen of suitcases and costs HK$4,000 a month.

“It will be profitable if two or three of the suitcases can be rented in a day,’’ Ms Cheung said, ‘‘but actually, the most popular item is GoPro tyfp.journalism.hkbu.edu.hk

Controversies of most of the sharing economy business are about the two issues, licensing and insurance. Companies like Uber, Airbnb, and Eatwith are illegal in Hong Kong, and they should obtain a license from the authorities.

Dr. Thomas Yuen, Associate Head of Economics and Finance at Hong Kong Shue Yan University suggested that businesses should be operated if they can comply with the legislations, as the government has to ensure the citizens’ safety.

Yet under the technological advanced society, some legislations should keep updated constantly, so that the law can be more practicable.

“The legislations should be more applicable, in order to create a healthy market.

It should be focused on the insurance coverage and quality of the suppliers instead of having a specific license which

“Sharing economy is not a creative destruction, it will not substitute the existing business model.

But both of them can be co-existed and create a healthy market competition.

Eventually it will enhance the services’ quality and a cheaper price, in which customers will be the ultimate winners,”

Dr. Thomas Yuen, Associate Head of Economics and Finance at Hong Kong Shue Yan University 7

LOCAL | TYFP

Two-child policy not economy boost but to deepen milk powder shortage in Hong Kong

By Joanne Liu Edited by Adelaide Hui

Hong Kong will not benefit from China’s two-child policy which is supposed to alleviate demographic strains on the mainland’s economy.

“The impact on Hong Kong is indirect and the city is passive to any policy change devised by the central government,” said Professor Raymond So Waiman, dean of school of business at Hang Sang Management College.

A threat rather than opportunity China is going to abandon its decades-old one-child policy and couples in urban areas are permitted to have two children following the decision of an October ruling Communist party gathering in Beijing. The policy change is considered as an economic stimulation tactic for the ageing population and shrinking workforce, yet Hong Kong is unlikely to share a slice of the cake.

“The impact is predicated upon the willingness of Chinese 8

couples to raise an additional child but most of them are unlikely to do so as the costs are barely affordable.” said Prof. So. “Any projection of the market is arguable as the effect of the policy cannot be measured insofar,” he continued. In fact, China has already loosened the birth control in 2013 and allowed couples to have two children if one of them was a single child. The birth rate did not rebound as expected despite millions of families were impacted.

Sir James Mirrlees, the 1996 Nobel laureate of economicsciences and the Distinguished Professor-at-large of the Chinese University of Hong Kong, said the consumption of neither China nor Hong Kong was likely to be boosted as only couples in the rural areas would be encouraged to give birth.

“Even many households might increase saving for future education of extra children,” he added. Accordingly, the retail and property sectors of Hong Kong cannot be benefitted, since China’s rural households

earn much less than their urban counterparts and is unlikely to pay frequent visits to Hong Kong.

Mirrlees considers the policy change as a threat rather than opportunity to Hong Kong.

“The desire to escape from the one-child policy may have been one reason for graduate migration from the mainland (to stay in Hong Kong after graduation). So that migration might diminish, reducing GDP and property demand in the long run,” he said.

Diversified investment on kid-related stocks Despite the uncertain prospect of two-child policy, a number of baby-related stocks surged right after the announcement of the new policy. For example, children game developer BIAOO (2100) and China Child Care (1259) rose 10.91 per cent and 18.69 per cent respectively during the week following the news.

Nonetheless, analysts concluded that the immediate market reaction was tyfp.journalism.hkbu.edu.hk

unsustainable and investors should bide their time before plunging into the market.

“The effects of two-child policy take at least one year to reflect and the present market reaction is merely a short-term speculation,” said Francis Kwok Sze-chi, principal financial commentator and executive director of Bright Smart Securities. The second and third quarter of 2017 would be an ideal time for buy-in, he continued.

Mr Kwok is optimistic to twochild policy and considers it as an effective stimulus on domestic demand. “The effect is not confined to a single sector that a variety of industries can be benefitted by the policy such as entertainment, education and healthcare service,” he said. Accordingly, investors are suggested to scatter their capitals over different sectors.

Hong Kong remains best spot for powdered milk supply Mainland Chinese have lost faith in domestic milk powder since the tainted milk scandals tyfp.journalism.hkbu.edu.hk

in 2013. They have been looking for quality infant formula in Hong Kong, Australia and the The UK since then and grey goods trading has gone viral on e-commerce platforms such as eBay and Taobao. Demand for baby formula from China has caused these countries to ration sales of powdered milk. In November, two major Australian supermarkets Coles and Woolworths imposed a two-can sales restriction in response to the Chinese grey goods traders. The The UK and Hong Kong also carried out a similar policy to tackle the overwhelming demand from China.

However, the ration in Hong Kong does not seem to be effective. According to a latest survey conducted by the Consumer Council, the shortage of infant formula, despite having narrowed, was still acute in certain districts including Tseung Kwan O, Tai Po and Sham Shui Po in which the shortage rate exceeded 20 per cent. The city is still

the top place for mainlanders to scrabble around for milk powder and the shortage was likely to deteriorate due to the rampant parallel trading and the loosening birth policy of China.

Mixed feelings of Chinese netizens towards the policy While most of the Chinese netizens are delighted with the new policy, many of them are concerned about the childbearing costs and intense competition in the society that are unfavourable for kids to grow up. According to a data analysis report of Weibo, “twochild policy” became the most frequently discussed topic on the mainland social media that it was circulated for 490,848 times from October 29 to November 5. The emotion value dropped drastically from 84 to 1 over a score of 100 within a week which indicated an attitude change from optimism to pessimism over time as netizens soon realized that raising children is a challenging task in China.

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CHINA | TYFP

Young consumer rise to save China’s slowing economy

By Mira Ding Edited by Wiki Su

Young shoppers in China have become the new pillar for the country’s economy when the traditional industry sector, which the government used to depend on, has been suffering from downward pressures.

From January to October 2015, China’s total retail sales of consumer goods reached RMB24.44 trillion (HK$29.72 trillion), up by 10.6 per cent year on year. But industrial growth slowed to 6.1 per cent from 8.4 per cent in the same period last year.

Youth clothing a major boost The robust retail growth was also reflected in the latest consumer price index (CPI) data. In October, CPI rose 1.3 per cent over the same period last year, among which clothing increased 2.4 per cent and became the second largest contributor.

Fast-fashion retailers who captured and produced the current mass fashion trends, replacing the dying luxury retailers as major CPI booster, as they were the young 10

generation’s favourite due to their low price.

“The overall economy may be slowing, but these more affluent young consumers are optimistic about the future and their ability to increase spending,” said Jeff Walters, a partner at Boston Consulting Group.

Clothing retailer Hennes & Mauritz AB, the operator of H&M and COS, saw its sales in China up 11 per cent in the third quarter. H&M has 299 stores in China by the end of August and plans to open 80 new stores in China by November 2015, comparing with a total of 68 stores added for the entire 2014.

Another world-leading fashion retailer Inditex, the parent of Zara, also mentioned in its latest financial report that its revenue grew by 16 per cent in its second fiscal quarter ended in September, due to the growth in the emerging markets including China.

Clothing sales in China is expected to reach US$80

billion (HK$620.54 trillion) in 2015, up 12 per cent from a year back, according to P r ic e w at erhou s e C o op er s’ consulting division.

Youth buying power noted on 11.11 On the Singles’ Day sale, one of China’s most remarkable on-line shopping events capturing world’s attention, the e-commerce giant Alibaba Group saw its total value of goods sold amounted to RMB9.2 billion (HK$ 11.2 billion), up by 60 per cent from the same day in 2014.

Ten consumers interviewed by TYFP aging between 20 and 25 said they spent at least RMB 1,000(HK$ 1,217) on that day.

Wu Hui, 24, fresh university graduate in Harbin, spent more than RMB10,000 (HK$ 12,170), most of which were on clothing and cosmetic products.

The Chinese shoppers showed their fanaticism in various consumer products from electronics to accessories.

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Huawei Technologies Co. Ltd., China’s leading networking products and telecommunication solutions provider, took the top spot with a turnover of RMB1.19 billion(HK$1.45 billion) on Tmall’s Singles’ Day, a yearon-year growth of 81 per cent.

Uniqlo also crossed the line of RMB600 million (HK$730.2 million) in Singles’ Day Sale. Hong Kong jewellery retailer Chow Tai Fook Jewellery Group (1929) said it recorded a total sale of RMB103 million (HK$125.35 million) in its Tmall store, ranking the first under the jewellery sector.

Films and cinemas benefitted Such vigour from the country’s youngsters pervades through the consumer sector, of which culture articles and services are also a bright spot.

China has become the second largest film market after the US with the contribution from its post-90s generation since 2013. The box office has surged to RMB36.9 billion in tyfp.journalism.hkbu.edu.hk

the first ten months of 2015, 50 per cent higher than the same period last year.

Wanda Cinema Line Co. Ltd., the mainland’s largest listed cinema operator by market share, said its box office revenue in October grew 41 per cent to RMB560 million(HK$681.52 million) from a year back. From January to October, Wanda saw its box office revenue rise 43.8 per cent to RMB5.04 billion (HK$6.13 billion)over the same 2014 period.

Despite the fact that China’s economy is under downward pressure, the middle and above households in the mainland will rapidly increase their spending between 2015 and 2020, according to a survey conducted by Bureau National Interprofessional du Cognac.

Beers suffered Not all the consumer-focused sectors are benefitted from the burgeoning young consumption power.

revived since it was affected by the anti-corruption movement initiated by President Xi in 2012, although the luxury alcohol market seems to be rising as China’s import volume of French brandy rose 42 per cent in the first three seasons this year, according to the industry association Bureau National Interprofessional du Cognac.

Carlsberg Group, the fourth largest brewer in the world, said it lost 4.5 billion kroners (HK$5.9 billion) in the third quarter, dragged by the performance of the Chinese and Russian market.

China’s economy has gradually shifted from investmentdriven to consumption-driven.

In the first three quarters of 2015, the consumer sectors took a 51.4 per cent stake in gross domestic product in 2015, versus 43 per cent five years ago, according to government statistics.

(RMB 1 = HK$1.217; DKK 1 = HK$1.3218)

The beer industry has yet 11

CHINA | TYFP

China’s O2O retailing channels still struggling amid shopping boom

By Watson Tan Edited by Wiki Su

Jagged goods quality and pricing, along with oldfashioned management, has reined Chinese retailers’ ambition for fully opening up on-line to off-line (O2O) channels, despite the nonstopping attempts by industry professionals for this new path of doing businesses.

The existing problems as such go against the original purpose of blending on-line and offline shopping channels, or O2O omni-channel retailing, to enhance the customer shopping experience - the key to retail success.

Traditional apparel or appliance store operators are the vanguards in the development of this new business model. They believe that it is their future, especially

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when customers value user experience more than before.

“Supposing you are on business in another city, and you prefer the goods you see there but do not want to add weight to your pack. In this situation, you can turn to our on-line site for orders and the goods will then be directly delivered to your home,” said Xu Xianling, Chairman Assistant of INMAN, an apparel brand from a Guangzhou manufacturer who established its own O2O system.

Even though such business model had been put into test in China since 2010, some platforms still failed to achieve the goal due, due to an immature operation by the market players.

Price Gap “Some traditional retailers are reluctant to face the fact that the price on-line is always lower than that of off-line stores, and people naturally prefer the cheaper ones. Retailers may fail in O2O omni-channel sales if they do not unify the online and off-line prices. More importantly, quality needs guarantee,” said Sun Jianfeng, Deputy Manager of the planning department in INTIME, a Beijing-based department store chain operator and later an O2O omni-channel retailer.

For Singles’ Day sales in 2015, Alibaba Group Holding Ltd., the Nasdaq-listed e-commerce giant, cooperated with over 180,000 off-line stores in its first attempt to get through

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both on-line and off-line sales channels.

As one of Alibaba’s partners, INTIME saw a 72 per cent rise in total on-line and off-line sales revenue year-on-year, due to its new same-pricing strategy in its on-line Tmall store and off-line physical shops. This led more customers to the off-line stores as people knew that everything was equal and they could even have better experience, which resulted in an ideal O2O omnichannel retailing.

Improper Management The improper management of on-line sites by off-line retailers is another problem experienced in O2O trials.

Most retailers merely increase the number of channels, but the essence is to get through the products, customers and tyfp.journalism.hkbu.edu.hk

payment methods at the same time, according to Mr Xu at INMAN. “The business has to be peopleoriented.

The interaction matters between customers and the brand. We want to remove the segregation among channels and we believe that there will be no distinction between on-line and off-line retailing. The reality is that customers focus more and more on the dressing experience and whether the brand can meet their personal needs,” Xu concluded.

Traditional managers at typical off-line retail stores are also setting back the progress of online expansions of these brickand-motor shops.

“Most e-commerce managers have to obey the leadership of

the old-fashioned executives.

However, the ageing management lacks the ability to innovate. Therefore, they should employ young people, who really better understand and run this radically changed business,” said Han Mei, a researcher from the retail research centre at Beijing University.

In the first three quarters of 2015, the sales of China’s 100 large scale retail enterprises had increased by 0.4 per cent year-on-year, according to China Nation Commercial Information Center.

In contrast, the domestic national on-line retail sales of goods and services rose 36.2 per cent in the same period to RMB2.59 trillion.(HK$ $3.08 trillion) (RMB 1 = HK$ 1.217)

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LOCAL | TYFP

Beacon goes public to snatch share in children education

By Kate Wing Ki Lin Edited by Lydia Lv

Local tutoring centre operator Beacon Group is seeking a listing on the Hong Kong Stock Exchange to raise funds for expansions into pre-school and primary education amid a shrinking secondary tutoring local market.

The decline of secondary tutoring service was mainly due to recent education reforms in Hong Kong, which reduced the secondary education to six years from seven and combined the Ordinary level (Form five) and the Advanced level (Form seven) public examinations into the Diploma of Secondary Education (DSE) examination.

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On the other hand, Hong Kong parents are yearning for the best schools and opportunities for their children, even when the toddlers have just learnt how to talk. Beacon therefore plans to enlarge its private education business to cover more pre-school and primary school curriculum with the IPO proceeds, its listing document revealed.

Besides running primary school tutoring service, Beacon also plans to allocate the listing proceeds to open not more than 10 new tutoring centres.

However, it did not disclose the target amount of IPO fund raising.

Human assets key to success Human assets are the most important resource in tutoring business.

Beacon’s listing documents have unveiled that one of its teachers has contributed over 40 per cent of revenue in the past three fiscal years, amounting to nearly HK$390 million. To reinforce the heavy gearing of human assets, Beacon’s major competitor Hong Kong Education (Int’l) (1082) posted a full-page advertisement to tempt one of Beacon’s teachers Jayden Lam Yat-yan with a generous annual reward of HK$85 million to switch sides.

The offer was rejected by Mr Lam through Facebook.

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CASH Securities associate director Tang Kin-chor said as high reliance on one teacher was not financially healthy for Beacon, the investment in Beacon was not very valuable.

“Amid the nearly-saturated secondary supplementary education sector, the profit for those tutoring business is not likely to hit a new high unless they expand into the mainland,” he added.

Meanwhile, Lam Ka-kei said “the listing position after all helps them (tutoring firms) to borrow easier from the banks, although human assets, such as the employment contracts with top teachers, are not recognised collaterals.” tyfp.journalism.hkbu.edu.hk

Profit-sharing with tutors, duration of their contracts, and student enrolment play a crucial roles in estimating the tutoring stock’s valuation.

China’s new birth policy helps There are three education organisations listed on the mainboard in Hong Kong.

Beacon’s listing might move their prices. “Hong Kong Education (Int’l)’s shares will be under pressure after Beacon is listed,” Lam said. The rivals are now competing not only for students but investors too as some of their existing shareholders may shift to Beacon which is estimated to be cheaper on valuation.

Meanwhile, the mainlandbased international schools operator China Maple Leaf Educational Systems (1317) was benefitted from China’s recently announced two-child policy with its shares surged more than 50 per cent on the news. China Chuanglian Education Group (2371), a mainland on-line education system provider, was up slightly after announcement of the policy. Lam said the real benefits brought by the laxation of population control would at least need ten years or so to take effect.

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LOCAL | TYFP

Hong Kong to top world IPO market

By Samuel Li Edited by Adelaide Hui

Hong Kong surpasses Wall Street to reclaim the IPO crown since it last held in 2011, expecting funds from newly listed stocks totaling more than HK$260 billion by the end of 2015.

In the first nine months, the Hong Kong bourse raised a total of HK$218.9 billion, which is an increase of 55 per cent when compared with HK$141.1 billion for the period in 2014, according to Hong Kong Exchanges and Clearing Limited. It is expected that the total will exceed HK$260 billion by year end while Wall Street will be the second in IPO ranking with about HK$200 billion.

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Big companies are waiting in line “Many big companies will go listing in Hong Kong before year end because they need not do the audition again next year,” said Hung lai-ping, the director of Amicus Asset Management Limited.

Although only HK$27 billion were raised from IPOs during the 3rd quarter due to the market rout but it did not affect Hong Kong’s ranking, since companies which planned to go listed during the 3rd quarter, had simply postponed to do it in the 4th quarter. Hung lai-ping said the market did not perform well in the 3rd quarter, thus a

large number of companies has postponed their IPOs schedule to the 4th quarter to avoid price plunges.

Big companies that have gone public in the 4th quarter are state-owned China Energy Engineering(03996.HK) which raised HK$13.9 billion, and CHINA RE(01508.HK) which raised HK$15.6 billion.

Lacklustre performances after flotation Also the price declines in several early IPOs such as HTSC(6886) which dived 30 per cent from a debut of HK$26 per share to HK$18.2per share, and China

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Re(1508) dropped from HK$2.7 per share to HK$2.33 per share.

China resumption of IPO has no impact on Hong Kong

Francis Kwok sze-chi, the marketing director of Bright Smart Securities, said “many mainland companies listed in Hong Kong are state-owned, while global investors have negative expectation on China’s future development and economic performances.

This negative market sentiment triggered newly listed companies to drop even further.” Another reason for mainland IPOs’ underperformance is their aggressive initial pricing, Mr Kwok said.

As a result, the cost of subscribing the IPO shares increased and decreased the stocks’ attractiveness.

China will resume its initial public offerings, after halting all applications in July as a rescue package to slow down the catastrophic stock market rout since mid-June. But Hong Kong will still be a more ideal market for Chinese corporations to raise funds.

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Hung lai-ping. She added that listing in Hong Kong helped to promote companies’ brand names, capture global market attention, and set up brand awareness. The rigorous supervision and monitoring system compared with the China market also made Hong Kong more desirable.

“Although the Chinese government resumed IPOs with better regulations, China state-owned enterprises would prefer to be listed in Hong Kong because global investors have more confidence in investing in Hong Kong IPO market than mainland markets”, said

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CHINA| TYFP

US dollar strength continues in 2016

By Joyce Zhou Edited by Elise Choi

In 2015, the spotlight of foreign exchange market was on the strengthening US dollar and depreciating Chinese yuan and Euro. Analysts believe this situation will carry on in 2016 and the US dollar will still be “the king of currencies’’ outshining others with forthcoming hikes in US interest rates.

Professor Terence Chong Tai-leung of Economics Department in Chinese University of Hong Kong believes that the Euro and Japanese yen will stay weak in 2016 because of the continuous quantitative easing (QE) by respective governments, while British pound will reflect the trend of economy.

Chinese yuan will possibly be steady and stay in a narrow range in the first half of 2016, and it is possible that China may devalue its yuan by 5 per cent in the second half of the next year, according to Ample Finance director Alex Wong Kwok-ying.

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Fed fund rate hikes back up the dollar The US Federal Reserve raised its benchmark interest rate by 0.25 per centage point on December 16 amid general expectations of more to come in 2016. The US dollar index grew almost 6 per cent from 94.86 in mid September to a 12-year high of 100.51 in early December. It finished at 98.70 on the day of the interest hike.

The terminal decision on the Fed fund rates will probably come out in mid December.

Billy Mak Sui-choi, associate professor of the deparment of finance and decision science at Hong Kong Baptist University noted that some impacts of the interest rate normalization have already been digested by the market from September 2015.

that it will continue QE at least until the end of March 2017, and broaden the assets purchased to include local and regional debts. Also, in line with the market expectations, the Governing Council earlier reduced its deposit rate by ten basis points to -0.3 per cent.

Mr Wong believes that the weak pattern of Euro will continue in 2016, although at one point after ECB’s announcement the Euro jumped 3.4 per cent to a high of 1.0982 against US$1.

“However, the rise was just a short covering,’’ he said.

Prolonged QE weight on Euro and yen

In January 2015, the ECB announced an aggressive QE programme with monthly purchases of 60 billion euro (HK$510 billion) from March 2015 to the earliest of September 2016. When the QE started, Euro slumped around 25 per cent and hit a one-yearlow at 1.05 against US$1.

In order to stimulate the slow economic growth in the euro zone, European Central Bank (ECB) said at the end of 2015

Similar to the ECB, Japan’s central bank also implemented a QE to save its economy, while the dollar

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fluctuated between 116 and 125 yen over the past year. The fall of the yen was obvious in the mid year with the dollar climbing to a 13-years high of 125.06 yen in June. However, in August, the conversion between the US dollar and Japanese yen experienced a sudden rise and went back to below 120 yen following by the news of China cutting its rates.

forces in the daily setting of the yuan’s reference rate, People’s Bank of China (PBOC), the central bank of China, lowered the reference rate by 2 per cent in August, resulting in the biggest oneday drop of yuan in two decades. The yuan’s daily midpoint trading price against the US dollar was 1.87 per cent weaker at 6.2298, following the PBOC announcement.

CNY to go further down after included as IMF SDRs

In November 2015, the International Monetary Fund (IMF) announced the inclusion of the Chinese yuan in the fund’s special drawing rights (SDR) currency basket, alongside with the four other currencies, including the US

In the second half of 2015, the depreciation of Chinese Yuan made a great impact on the global currency market. In order to improve the market ,

,

dollar, Euro, British pound and Japanese yen.

“The decision would possibly an increase the demand for yuan,” said Prof. Mak. Before the inclusion takes effect in October 2016, the yuan exchange rates will tend to be flattened or decreased slightly based on the composite effects of China’s economic growth, foreign trade, and other factors, Prof. Mak added.

“The (Yuan) devaluation would not be near”, Mr Wong predicted, “as the PBOC will try to maintain a steady exchange rate. But if things do not improve, the yuan is expected to be devalued by 5 per cent in the latter half of 2016.”

In 2015, as US$ kept strengthening, main currencies against US$ dropped. US dollar index (orange line) had a rising trend driven by the country’s improving economy and the forthcoming hikes in its interest rates.

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19

Sector Representative Wiki Su

Editors Adelaide Hui

Financial Editor Joshua So

Lydia Lu Art Director Cherrie Chung Copy Editor

Wiki Su

Reporters

Elise Choi

Pamela Lin

Mira Ding

Watson Tan

Jessica Tian

Joyce Zhou James Wang

Kyle Tang Bryan Kwok

Publisher

Alex Tsoi

Alice Lee

Kate Lin

Photo Editor Mira Ding Public Relation Officers Jessica Tian

Emilie Chan

Printer Department of Journalism

Vegas Tang

School of Communication

Ian Mak

Hong Kong Baptist University

Jenny Lam Robin Ewing

David Liu Laura Wong

Elise Choi Advisors

Kyle Tang

Printer Address

Yy Yeung

Dept of Journalism,

Vanessa Chan

HK Baptist University Kowloon Tong, Kln

Alison Leung Website tyfp.journalism.hkbu.edu.hk

Email tyfp1415@gmail.com

Sam Lee