Young Financial Post - March 2015

F

TheYoung MARCH 2015

Survey on entertainment spending habits of Hong Kong Youngsters

CONTENT 4

6

Cover 10 Survey on entertainment spending habits of

Hong Kong Youngsters

Feature How Hong Kong Travel Industry be benefited from K-pop Tourism

Korean Wave The trend is affecting Consumption in HK

12

Party House The new “in” place for fun-loving youngsters

14

Stock Market A summary of HK IPO market in 2014 and 2015 outlook

16

Capital liberalisation How China’s new moves affect the Renminbi?

17

China Tech Bubble Will it explode in the coming year?

FOREWORD

The decision by the United States to gradually withdraw quantitative easing overshadowed global financial markets last years.

The Umbrella Movement, which took place in Hong Kong from September to December, triggered people’s concerns about its economic impact on this East Asian financial centre.

It was under these internal and external uncertainties that Hong Kong maintained its attractiveness to newly listed companies and absorbed funds from initial public offerings (IPO) second only to Wall Street in 2014. Thus, in this first English-language version of our financial magazine we present

a story about Hong Kong’s IPO ranking and offer a glimpse on the prospects for 2015. In addition, we also offer two very timely stories on China’s financial scene, the first on the liberalisation of China’s capital markets and the second on the looming possibility of a China tech bubble.

Our cover story, which features a survey of students from eight government-funded universities and tertiary institutions, reveals that the majority of students are having monthly budget of below $2,000, while they spend a quarter of their money on entertainment.

We also explored other interests of the young generation, such as the growing influence of Korean pop culture in Hong Kong, including

both concert tourism and other cultural issues. Party house – a new kind of youth gathering outlets mainly established inside industrial buildings – is another topic presented by our young financial reporters.

With this first Englishlanguage issue as a platform, we would like to reach out to the international population, including native English speakers, in this city. We welcome feedback on our writing and coverage from all our readers.

Iris Tong Financial Journalism Class Representative

ABOUT US Sector Representative Financial Editors Iris Tong Joshua So

CONTACT

Art Director Reporters Cherrie Chung Adelaide Hui Bryan Kwok Copy Editor Cherrie Chung Bryan Kwok Elise Choi Ever Tang Photo Editor Iris Tong Mira Ding Jason Wong Jessica Cheng Public Relation Officers Jessica Tian Jessica Cheng Joe Chan Elise Choi Rainbow Wong Wiki Su Advisors CK Lau Publisher Robin Ewing Alice Lee Alison Leung Printer Printer Address Department of Journalism Dept of Journalism, School of Communication HK Baptist University Hong Kong Baptist University Kowloon Tong, Kln

ISSUU

FRONT

Survey reflects pragmatic spending habits among university students Chart 2: Entertainment Expenditure 16%

4% 6% 18%

21%

35%

Under $100

University students have developed pragmatic spending habits, despite being faced with a variety of temptations from food to video games, a survey by The Young Financial Post revealed.

Most university students in Hong Kong live on a monthly income or budget of less than $2,000 and a quarter of their income will be spent on entertainment.

A survey of 183 students from the eight government funded universities and tertiary institutions between November 1421 in 2014 showed that most of the students have a monthly income of less than $2,000, and they will only spend about a quarter

4

$100-$300

of that sum on entertainment (See Charts 1 and 2 for a distribution of the students’ income and entertainment expenditure).

More than 80 per cent of the students’ entertainment is watching movies in cinemas.

After that, more than 60 per cent of the respondents said they also participated in barbecue gettogethers and playing sports.

For those who spent money on sports, about 60 per cent are participants rather than spectators and treat it as their major entertainment expense.

“That’s quite nice and pretty healthy!” said Dr. Marc Mazodier, Assistant Professor in the

$300-$500

$500-$1000

$1000-$2000

Over $2000

Department of Marketing of Hong Kong Baptist University. He was surprised that so many university students in Hong Kong were willing to spend money and time on watching movies in the cinema and playing sports. “As a foreigner, I am quite impressed that in such an overcrowded city it is still pretty easy to do sports. As you know the image of Hong Kong in many countries is a very overcrowded city and it is thought that it is hard to do sports, but actually it is not.

People can play sports quite a lot.

In Hong Kong, this is good news.”

There are obvious differences in entertainment consumption between genders. The boys prefer

“As a foreigner, I am quite impressed that in such an overcrowded city it is still pretty easy to do sports.”

Dr. Marc Mazodier, Assistant Professor in the Department of Marketing of Hong Kong Baptist University to spend on buying a computer or mobile phone game software as well as miniature toys, while the girls prefer to have facial treatments and buy stuffed toys.

Mr Tsang Lok-wai, an engineering student at the Hong Kong Polytechnic University, said he always spend around $5,000 per month on entertainment, with around 40 per cent of the total spent on buying game software and their peripherals, together with other applications for the computer. “Living at this very moment and enjoying my life is the main goal of my entertainment spending,” he said. Tsang has a monthly income of $2,000 and a

monthly allowance from parents of $4,000.

However, 131 or 72 per cent of the 183 respondents live on just $2,000 or less a month.

“Since I am currently living in a residence hall at BU, my parents always give me the allowance when I return home. I will get $700 on a normal day and $800 to $1,000 on special occasions such as traditional Chinese festivals,” said Chan Sik-chung, an analytical and testing science student of Hong Kong Baptist University. He earns no income and his parents provide him with living expenses.

Chan would spend around $1,000 per month on entertainment

purposes, and he mainly use the money on gatherings, films and singing karaoke.

The Occupy Central movement, or the so-called umbrella movement, did affect the mood of student gatherings, Chan said. However, it seemed to have little or no impact on individual entertainment such as spending on computer software, Tsang said.

By Jessica Cheng

5

FEATURE

K-pop tourism gives new breath to HK travel industry

The Mnet Asian Music Awards (MAMA), one of the major South Korean pop music awarding ceremony, has drawn Hong Kong people’s attention with the participation of some of the renowned singers, actors and celebrities not just in South Korea but also China, Hong Kong and other countries. The event signifies the increasing attraction of Korean Popular (K-pop) artists to Hong Kong fans, and has become a milestone for concert tourism which emanates from Japan and South Korea to this city.

Concert tourism is a part of the tourism industry that provides economic boost and employment opportunities to the target cities.

It organises concerts and travel packages to gather fans and tourists in various overseas spots.

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Concert tourism in Japan and South Korea Concert tourism is well developed in Japan and Korea.

Japanese popular music (J-pop) groups, such as AKB48 and Morning Musume together with female singer Mano Erina, are famous for providing travelling party packages for their fans. Fans, local or overseas, who have registered with the relevant official fan clubs, can join these parties of two to three days in length. They can go sightseeing and mini concerts with their idols.

South Korea, which has overtaken Japan in this popular trend, has further developed the concert tour package. For example, Star Museum Entertainment provides fan packages, which include air tickets and front section seats in relevant concerts. Meanwhile, the

Incheon city government provides free concert tickets for the Incheon Korean Wave Concert to tourists who spend well in the city: Any purchase, even a pack of candy, will count towards the offer. Again, the city government will reward the generous spenders with good seats at the concert.

MAMA’s experience, Hong Kong’s potential MAMA is a great example, showing the possibility of developing concert tourism in Hong Kong. The event is held annually by CJ E&M Corporation, which started taking the event outside of Korea in 2009 and came to Hong Kong in 2012.

Statistics show that visitors from South Korea to Hong Kong rose nearly 10 per cent to 95,232 in November 2013 from 86,841 in the same month a year ago. It was during

this period that MAMA changed its concert location from the 7,000seat Hong Kong Convention and Exhibition Centre to the Arena at the Asia World-Expo, which has 10,880 seats. Apart from the increase in the box office, the event also created employment opportunities such as back stage helpers, technicians, translators and even raised the sales of glow sticks used by the audience at the shows.

Kun Yang Co., Ltd. is a Korean barbeque restaurant chain operating in Hong Kong and sponsor of the concerts. A lucky draw programme is held, where winners will walk away with free MAMA tickets.

BBQ7080, the Korean dining hall, also saw a surge in business across all its outlets. “The total amount of orders increased in all the branches since most of the customers spent at

“Hong Kong is the biggest economic and cultural center in East Asia.

It is also the bridge connecting Korea, Japan and East Asia with Greater China, and it is a convenient place for fans from other countries to come to.”

Sin Hyeong Gwan, Mnet representative least $500 each to participate in the lucky draw for the MAMA tickets,” said a staff member from BBQ7080.

Hong Kong clearly has become an attractive place for concert tourism: The city recorded a one-percentage point growth in movie and concertrelated visitors, bringing this tourism sector to five percent of all

tourists in 2013. During the year, a total of $800 million from concert ticket box offices has been recorded, representing $2.162 billion in gross production revenue. This includes revenue recorded by the retail sector, hotel and catering industry.

Also, an increase in concert tourism from the Pacific region was noted, 7

Chen’s stall is selling D.I.Y souvenirs outside the concert hall.

Visitors Profile - Major Market Areas Places Visited / Activities Taken % (Con’td) Movie / Concert

All Countries

All Overnight Visitors The Americas

Eurpoe, Africa & Middle East

Australia, NZ & South Pacific

North Asia

South & Southeast Asia

Taiwan

Mainland China

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

2012

2013

4

5

4

4

4

4

2

3

1

1

2

3

3

3

5

6

Total Visitor Arrival by Country or Territory

Nov, 2012

Nov, 2013

Jan - Nov, 2012

Jan - Nov,2013

Country / Territory of Residence

No.

No.

TOTAL

4,216,937

4,579,681

% Growth

No.

No.

% Growth

+ 8.6

43,837,125

49,076,480

+ 8.6

Mainland China

3,040,360

Short Haul Markets (Exclude Mainland China)

703,890

3,348,121

+ 10.1

31,431,854

36,855,277

+ 10.1

758,789

+ 7.8

7,603,662

7,501,773

+ 7.8

Taiwan Japan

163,147

168,360

+ 3.2

1,898,362

1,919,148

+ 3.2

84,165

95,012

+ 12.9

1,159,496

953,300

+ 12.9

South Korea

86,841

95,232

+ 9.7

976,133

976,261

+ 9.7

Source : Monthly Report - Nov 2013 Visitor Arrival Stattistics

as visitors from Mainland China, Australia, New Zealand, South and Southeast Asia all posted a one percentage point rise during the year to six, three and three per cent, respectively.

However, concert tourists complained about the lack of a packaged concert tourist service in Hong Kong. “I joined some of the packages by SM Entertainment for Super Junior (a K-pop group from South Korea) to follow them all over the world,” said Miss Chen, a fan from Taiwan, “But this time, I came to Hong Kong by myself since there was no concert tourism package.”

Chen financed her trip to Hong Kong by selling memorabilia of the singers that she had made herself.

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“The total amount of orders increased in all the branches since most of the customers spent at least $500 each to participate in the lucky draw for the MAMA tickets.”

A staff member from restaurant BBQ7080 Can Hong Kong promote concert tourism for local stars?

No one knows when will this hot Korean wave cool off, just as the Japan wave did about five or so years ago. Meanwhile, Hong Kong’s popular music artists also have the potential to be the stars

of concert tourism. “When a mini concerts or a birthday party is held, over a hundred mainland fans will come to Hong Kong to join it,” said Waiyee, spokesman of the local pop group Twins. “There were also fans from Singapore, Thailand, Japan, Taiwan, Vietnam and Malaysia,” she

Fans are in queuing so as to buy the souveniors.

added. In the last Twins concert, 200 fans from mainland and around 50 fans from Southeast Asia came to Hong Kong to attend it. Other local artists, such as Andy Lau, Joey Yung and Raymond Lam, all have international fan clubs which would support a concert tour,” said Waiyee.

A major obstacle to further development of concert tourism is the shortage of large venues.

In Seoul, Jamsil Sports complex provides 69,000 seats for concerts usage, while in Japan the Five Domes can each take in 30,00060,000 people. But there is no such “dome” in Hong Kong. AsiaWorldExpo and Hong Kong Coliseum are the two frequently used arenas in Hong Kong, which can hold just over

10,000 each. In March 2014, the Hong Kong University Public Opinion Programme (HKUPOP) published a research report on public opinion on the development of concert and performance commissioned by Performance Industry Association.

As a result, more than 30 per cent of the respondents had attended pop concert or musical festivals in Hong Kong during the year. In addition, 20 per cent of the respondents had participated in similar events abroad in the past few years. Nearly 65 per cent of the respondents agreed that concerts would give a boost to Hong Kong tourism and stimulate local consumption.

Also, the majority agreed that the development of a larger venue

depends on transportation facilities and government support.

Unlike the general perception that a Korean wave is hitting Hong Kong, the HKUPOP research results showed that those who attended overseas concerts or musical events are mainly from the Greater China region, including mainlanders at 37 per cent, concertgoers from Macau at 20 per cent and from Taiwan 14 per cent. Only 3.0 per cent of those respondents with overseas experiences attended concerts in South Korea and only 2.0 per cent in Japan, the report showed.

By Cherrie Chung

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MARKET

Korean Wave Fans Hong Kong Consumers

“My love from the Star”, a recent hit South Korean soap opera airs every weekday evening on Hong Kong television, sponsored by a well-known Korean skincare brand. Meanwhile, more and more Hong Kongers to dine at Korean restaurants that line Kimberly Road in downtown Tsim Sha Tsui.

Without a doubt, Korean culture has infiltrated Hong Kong hearts and minds.

Since 2011, South Korea has become Hong Kong’s sixth largest trading partner. While it recorded the second largest year-on-year surge of 10.20 per cent in Hong

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Kong’s import trades at $144.37 billion during the first ten months in 2014, second only to Taiwan’s 16.30 per cent rise, compared with its performance a year ago, Hong Kong statistics showed.

Electrical machinery and telecommunications and audio apparatus, are the largest export items in terms of worth from South Korea to Hong Kong. A good portion of those goods are made by Samsung, one of the most profitable mobile phone and electronics manufacturers in the world and arch rival of Apple.

Chinese President Mr Xi Jin-

ping and South Korean President Ms Park Geun-hye signed a draft free-trade deal at the annual AsiaPacific Economic Cooperation Summit held in Beijing in November this year. Hong Kong as a sourcing centre for China-made goods and entrepot to the country, thus cultivates a close trading relationship with South Korea.

Ms Jacqueline Yuen, spokesperson for Hong Kong Suppliers and Hong Kong Manufacturers Research said, “If the treaty works, Hong Kong will become a more preferable location for Korea logistics companies.

The demand for Hong Kong legal and financial experts will surge as well.” She also said, “It is far beyond about how many products can be traded across the national border, yet it will also attract investment to Hong Kong.”

Hong Kong electronics manufacturing services (EMS) providers hold all the aces when it comes to collaboration with Korean companies, combined with an entrenched procurement network and experienced in dealing with clients across sectors and all over the globe.

Such EMS services covers the

supply chain, from research and development, procurement and manufacturing, to sales and distribution management.

Apart from trading, Hong Kong is developing strong ties with South Korea due to exponential growth in Korean popular culture exports: K-pop music scene, films and television dramas as well as fashion. Korean cosmetic brands are also doing good business in Hong Kong. Brands such as Innisfree, Etude House and Tony Moly can easily be found in Hong Kong‘s main commercial areas such as Mongkok and

Causeway Bay. Ms Pink Hau Sui-ping, the founder and chief stylist of a Korean make-up school, Pink Evolution, said “Talking about cultural influences from foreign countries, we would merely mention Japan in the old days, but now we would more often say Korea.” She said, “Financial support from the government in South Korea is a great help in facilitating the growth of the entertainment industry. And I believe Korean culture is going to further affect the way of life in Hong Kong and other parts in Asia

By Iris Tong

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SMALL BUSINESS

“Party House” business sparks up in HK Hong Kong’s many underused industrial buildings have become the “in” place to set up not just art and design studios but party houses, where the city’s youth can economically enjoy time off with friends and classmates. The success of the concept has sparked a trend, and more and more young people are opening their own “house”.

As Hong Kong is a crowded place, it is difficult and expensive for large groups of people to get together, and the concept of a “party house” has caught fire with young entrepreneurs. People typically can stay at the house for four to five hours in their reserved space where various facilities, such as tabletop games and DVD players, are provided for free.

in October 2013. They rented a place in an industrial building with a total gross floor area of 600 square feet.

House Moment has applied for a business license, but other than that, no other approvals from government departments are required. Unlike restaurants, cafés or clubs, which will be subjected to stringent licensing requirements by the Fire Services Department and the Food and Environmental Hygiene Department, the party house is not yet restricted.

People can enjoy free drinks in House Moment although no cooked food will be served. At least one staff monitors the progress of events on the premise when customers are holding a party.

Tariffs of House Moment: Basic charge per person: HK$88 for 4 hours Before 6 pm: Minimum 6 people

After 6 pm: Minimum 8 people

If a smaller group wants to rent the place, they need to share the minimum charge among themselves.

Most of the party houses in Hong Kong are located in places with easy access, such as Mong Kok, Kwun Tong and Lai Chi Kok. They commonly charge according to the length of time required and the number of people attending, normally from $60-90 per person for a four-hour session for a group of five to ten people.

House Moment is one of the new party houses located in Lai Chi Kok. Mr Leo Wong, Mr Jay Chow and Mr Michael Wong, who all have their own fulltime jobs, founded House Moment with a total investment of $100,000 12

“As a party house is usually located in some industrial building, there are quite a number of ordinances governing different types of activities in such premises,” said Ms Joanna Tse, an Inspector Licensing of Hong Kong Police Force, without elaboration.

House party operators are less concerned with the administrative requirements than the cost. “The highest cost of setting up is the advance rent payment,” said Mr Michael Wong. Nearly half of their investment is used to pay the rent in advance, while they need to strike the balance among the other

expenses such as the purchase of tabletop games and furniture.

In order to reduce the cost, they designed and decorated the party house themselves.

House Moment has been set up over a year and found the low season. “For the low season from March to June, we only got 100 customers per month, while we had 300 customers per month in the high season, said founder Mr Jay Chow.

But still, there are lots of people who are interested in this business.

There were just around 10 party houses in Hong Kong in 2013, but now the number has increased to 50 in total, according to Michael Wong’s own survey.

“Setting up a party house would be a good choice for young people with a limited budget who wanted to test the water in the entertainment industry,” said Michael Wong.

The operating costs of a party house are low excluding the rent, so young people experiment and try their own selling points, such as setting up s theme room. Ranis Lam, a marketing student at Hong Kong Baptist University who has been to House Moment said the rising number of party houses with different selling points offer students a variety of high quality choices. “The setting of the environment is the most important criterion when I choose a party house.” she said.

By Rainbow Wong

13

STOCK MARKET

Hong Kong IPO proceeds grow

Hong Kong was defeated to top the global IPO ranking this year but the city pushed two big mainland IPOs in late 2014 that lift Hong Kong ahead of NASDAQ yet led by Wall Street as in last year.

Hong Kong came second in terms of IPO funds raised in 2014 as in last year. With 122 IPOs raising $227.7 billion, which is an increase of 35 per cent compared with $169 billion last year. The market lacked mega IPOs and lost the giant e-commerce Alibaba’s IPO to Wall Street in the first three quarters. Yet in the forth quarter, the China’s leading commercial property developer Dalian Wanda Commercial Properties completed the largest IPO of the year, accounted for $28.8 billion.

Subsequent to the largest nuclear operator by installed capacity in Mainland, CGN Power, raising 24.5

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billion. They both propelled Hong Kong from fourth to second in the global IPO ranking.

Comparing globally, companies have raised US$28.8 billion ($225 billion) in Hong Kong while New York Stock Exchange came first with US$73.4 billion ($573 billion) raised, including the recordbreaking $195 billion absorbed by Alibaba. Nasdaq financing US$21.7 billion ($169 billion) ranked third, Ernst & Young reported.

Mainland companies are attracted to list in the US Listed in the US with dual-class shares, Alibaba allows minoritycontrol voting structures as to ensure its founders would not lose voting power. It might set a model for other mainland companies to leave Hong Kong IPO market for the US’s.

“Definitely growth sectors like high tech companies will consider

to list in the US rather than HK when the US is the only place to approve dual-class structure.” said Ample Finance Group fund manager Mr Alex Wong Kwok-ying.

“But Hong Kong still is a good place for companies from traditional sectors to list in since mainland companies consider Hong Kong to absorb international money,” Mr Alex Wong added.

China reopened to IPOs yet market remains a concern China capital markets reopened to IPOs in January 2014. The door to IPOs had been shut for more than a year by regulators, since China attempted to carry out a reform to alleviate the guided pricing system, which had led to unreasonably high IPO pricings resulting a dismal performance of stock markets.

However with a robust pipeline

in 2012 and 2008, which lasted for 14 months and eight months respectively.

Shanghai-HK Stock Connect might be a driver to IPO The Shanghai-Hong Kong Stock Connect commenced in late November failed to attract large fund inflows into either markets at least during the initial stage. However analysts are still optimistic towards the “Connect” as it should boost the attractiveness of Hong Kong as a listing location for both Mainland China and international companies, bringing the A-share market closer to the international markets, said Ernst & Young in a report.

“This is in turn a step to attract investors from the mainland as they might invest through the Connect. But only companies with big market cap of more than HK$

Photo courtesy of Bloomberg

of 600 companies waiting to go public, mainland companies still prefer to list in Hong Kong since Hong Kong is much faster in handling listing procedures and most importantly having reliable regulations.

“We believe listing in Hong Kong can help our company most since Hong Kong is an ideal place with sound system to finance globally,” Chairman of Sunlit Mr Zhang De-gang said.

Besides being non-transparent in listing procedures, the repeatedly shut down and reopen of A-share IPOs application remains a concern to investors because it is hard to guess when the regulators shut down the IPO market again.

“It still takes time to ease backlog of A-share since China IPO market has been shut and reopened for eight times,” said Mr Alex Wong. The recent shut downs were

10 billion can attract mainland investors through the Connect,” said Mr Alex Wong.

Mega IPO comes to Hong Kong in 2015 On the other hand, it expected that global IPO surge to be promising next year, said Mr Adam Kostyál, head of European listings at NASDAQ.

Anbang Insurance valued $15.60 billion, is considering Hong Kong as the IPO destination this year.

However, Mr Lei Jun, the Chairman of another giant technology company Xiaomi said, “Xiaomi will not go public in the coming five years.”

By Adelaide Hui

15

Photo courtesy of Bloomberg

With the opening of the Shanghai-Hong Kong Stock Connect in November, China is seen accelerating its pace to open up its capital accounts by the launch of schemes allowing Chinese institutions and nationals to invest their renminbi (RMB) in overseas markets and companies to issue RMB denominated shares abroad.

Mr Wang Dan, an officer from People’s Bank of China (PBOC), said on October 9 that with the increasing cross-border use of the RMB, it is time for China to implement capital liberalisation.

The Schemes and RMB The Shanghai-Hong Kong Stock Connect allows investors of Shanghai and Hong Kong to buy stocks in the other stock exchange from November 17. On the same day, Beijing launched the Renminbi Qualified Domestic Institutional Investor (RQDII) program that allows qualified domestic institutional investors to invest their RMB in overseas assets. The PBOC is

also drafting rules to govern another program, Qualified Domestic Residents (QDR), to allow qualified domestic individual investors to invest in overseas stock markets..

Mr Liao Qun, Chief Economist of China Citic Bank International said, “After 36 years of economic reform, China has nearly fully opened its commodity market and futures market but not its capital market.

Current strategy of Qualified Foreign Institutional Investor (QFII) has a very low limit, so it is definitely the right time to liberalise the capital market and allow more freedom.”

Liao Qun also pointed out that the government had allowed new channels of outflow of RMB in order to support the internationalisation of the currency. He quoted a report

by HSBC stating that the RMB will become the fourth largest payment currency by 2020, after the US dollar, British pound and euro. By that time, 28 per cent of China’s foreign trade will be settled in RMB, which might reach

as high as US$3 trillion.

He added that with the strict limits of the Shanghai-Hong Kong Stock Connect, RQDII and QDR schemes, there was no need to worry about any sudden large outflow of RMB as a result of malicious stock price manipulation by institutions.

For the Shanghai-Hong Kong Stock Connect, the daily trading limit is 300 billion yuan for the Shanghai stock exchange and 250 billion yuan for the Hong Kong stock exchange. The authorized investment amounts of QDII, QFII and RQFII are US$87.37 billion, US$64.10 billion and 294.40 billion yuan, respectively by October 30, 2014.

The Schemes and Economy Mr Hong Hao, Managing Director of the Bank of Communications International, said that as the second largest economy in the world and with the largest foreign exchange reserves of any country, China faced much less risk in the process of capital liberalisation compared

By Jessica Tian

16

FINANCE

China accelerates capital liberalisation, Hong Kong poised to benefit

with smaller economic entities such as Thailand and South Korea, while their currencies had battered by the markets during the Asian financial crisis in 1997.

“The difficulty domestic companies face securing financing will also be significantly reduced in the future stages of capital liberalisation,” said Liao Qun, “The aim of all these measures is to help companies go out and seek opportunities overseas.”

The Schemes and Hong Kong From Hong Kong’s perspective, Liao Qun believed that as the biggest offshore RMB centre, Hong Kong could definitely take advantage of China’s capital market liberalisation.

On the same day of the inauguration of the Shanghai-Hong Kong Stock Connect, a limit on Hong Kong residents to exchange up to 20,000 yuan a day has been lifted.

Although China is seeking cooperation with the United Kingdom and Singapore on RQDII, and Australia joined

RQFII in November as well, Mr Liao Qun believed that Hong Kong would continue to serve as the best choice for the internationalisation of RMB. However, he admitted that with the rapid opening-up of the mainland market, more international cooperation could be done in Shanghai rather than Hong Kong. For example, Ms Carmen Ling, Global Head of Renminbi Solutions at Standard Chartered Bank predicted in a press conference in London that if Shanghai-Hong Kong Stock Connect turned out to be very successful, then the same kind of connection might be made between Shanghai and London and Shanghai and New York in the future.

By Jessica Tian

“Whether Hong Kong can retain its status as the biggest RMB offshore trading centre depends on the market’s performance as well as central government policy.

Certainly Hong Kong will benefit more if new policies to guarantee its position are brought out. ” Hong Hao, Managing Director of the Bank of Communications International 17

FINANCE

Is China the next incubator of tech bubble?

Investors interested in China have to be cautious in the coming year about the risk of over-valuation of certain technology start-ups, which is driven by continuous injection of venture capital into the sector.

The aggregate input of venture capital into the Chinese technology sector reached around US$3.27 billion during the first half of 2014, 74.30 per cent of the total amount for the previous year, and 1.3 times the annual total for 2012, according to data tracker Dealogic.

Not limited to venture capital, the sector also raised US$12.20 billion in the first nine months of this year via 54 stock-related deals in the domestic market: including initial public offerings and share placements. That was nearly four times the trading value of the same period in 2013, with US$3.10 billion via 19 deals.

“There is a lot of capital that has been raised by venture funds but not yet invested. They need to find companies to invest in, so the market will continue to see more deals,” said Mr Xiang Ni-na, the

18

“However, it only takes a few seconds for the market to shift from today’s crazy environment where people are too busy pursuing higher future profit to tackle the higher risk to the opposite.”

David Zhang, co-founder of Matrix Partners producer of China Money Network, a media company serving global institutional investors.

Chinese TechCom for US IPO Technology blockbuster of this year - Alibaba Group Holding

Ltd., raised a record US$25 billion through an initial public offering on the New York Stock Exchange.

China’s second largest online shopping platform, JD.com, raised US$1.80 billion in an IPO on Nasdaq

Photo by Bryan Kwok

this May, while Weibo Corporation, operator of the Chinese version of Twitter, also raised about US$285.60 million on Nasdaq during the same month.

Debates abounded about whether China’s current situation suggested a bubble similar to the global one seen 15 years ago, when many dot-com companies also hit astronomical valuations and the NASDAQ composite index reached as high as 5,132.52 points in March 2000. In the subsequent slide from that peak, there was a swath of bankruptcies of such big names as WorldCom, America’s second largest long distance telephone company at that time.

But the key sign of determining a bubble lies more in retail investors, according to Mr Xiang, and now it is still at a nascent stage compared to the dot com bubble, as retail investors are not yet hot-headed into buying the dot com stocks.

Valuation Among the broad range of categories in the technology sector, mobile app is a favourite of venture investors. Quite a number

of independent mobile app startups established within the last five years now have a valuation above US$100 million, most of which have burgeoning active monthly users, which is a sign of a prosperous market.

“It’s very hard to value technology start-ups, as most of them don’t have earnings, or even revenue, so there is no P/E ratio or EBITDA to speak of.

The valuation is more by common sense or reasonable expectations, and in some cases they are overvalued,” Mr Xiang said in reply to Young Financial Post’s questions in an email.

Momo Inc., the Beijing-based social networking platform established in 2011, just filed for a US$300 million NASDAQ initial public offering this November.

Keen interest in the listing has reportedly driven up its valuation to almost US$3 billion. Its monthly active users reached 60.20 million in September 2014, representing growth of 112.80 per cent over a year earlier.

However, despite the high valuation and user figure, Momo

has not yet generated any profit.

It suffered net losses of US$3.80 million, US$9.30 million and US$8.30 million in 2012, 2013 and the first half of 2014, respectively, according to the company’s IPO filing.

Momo cannot be reached for comments now according to the security regulation.

Investors have given tens of millions of dollars to mobile apps, which beefs up their valuations.

Customised news app Toutiao, launched in December 2012, now has a valuation of US$500 million after raising US$100 million in its third round of financing this June.

Still, no one is sure when the market will peak, and investors should not be carried away nowadays by over-optimism of technology start-ups with popular concepts, as there are certainly some companies that have been valued higher than their worth or potential, said Mr Xiang.

By Wiki Su

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