Why an Ant IPO is Good News for HKEX?

Alibaba’s affiliate Ant caught some investors of Hong Kong Exchanges and Clearing Limited (SEHK: 388) by surprise when the company announced that it will list in both Hong Kong and Shanghai’s exchanges. 

Here’s why the news is bullish for Hong Kong in general. 

Why the news caught some by surprise

Ant could just be listed in China given that it makes most of its money in China. Valuations in China, particularly on Shanghai exchange, can sometimes be higher than what they are in Hong Kong. Selling shares in another market with potentially lower valuations would not help as much as selling shares solely in one market with high valuations. 

Ant could have also chosen to list in China, Hong Kong, and New York. If Ant listed in both Hong Kong and New York, HKEX wouldn’t have realized as much of the listing benefit. 

How HKEX benefits from the news

HKEX benefits from the news in two ways.

First, Ant listing on HKEX will drive more trading volume, which could help expand the market’s size and flows of capital. 

Second, HKEX will benefit from the network effect where the company becomes more useful as a platform if Ant lists on it. The bigger companies that are listed on HKEX’s platform, the more useful it is to investors. The more useful an exchange is to investors, the more potential capital/liquidity it could attract to the exchange. The more capital/liquidity, the more big companies that might list on it. 

Why Ant is listing in Hong Kong

Ant is listing in Hong Kong because the city is known for being an international financial hub with a vast number of investment opportunities. It is also where foreign investors have access to China’s financial market.  

From the perspective of attracting international capital, Ant’s listing in Hong Kong is a good sign for HKEX in that it reinforces Hong Kong’s current status in the region’s financial markets.  

Ant’s listing would potentially attract other big companies could also choose to debut or co-debut there in the future. Listing in Hong Kong is not only be a capital raising event, but also it raises a company’s brand awareness.

Foolish Conclusion

Ant choosing to IPO in both the Star Market and Hong Kong is good news for HKEX because it means that Hong Kong can potentially co-exist with domestic Chinese exchanges in the future. It also reinforces Hong Kong’s status as an international capital center.