ASIA PULSE: ANALYSIS - MAJOR NASDAQ STOCKS TO LIST IN HK PILOT PROGRAMME
80% match; Asia Pulse ; 21-Feb-2000 12:00:00 am ; 1365 words
(Analysis from Asia Today, Australia's regional business magazine. Contact: asiatoday(at)compuserve.com
HONG KONG, Feb 21 Asia Pulse - Seven of the largest companies in the United States, currently listed on the New York-based exchange, Nasdaq, will list on the Hong Kong Stock Exchange this month in a pilot programmme to co-list stocks between the two exchanges.
The US technology stocks selected for Hong Kong listing are Microsoft, Intel, Cisco, Dell, Amgen, Applied Materials and Starbucks. Trading will take place on the existing automatic order matching and execution system in Hong Kong, and will be in Hong Kong currency. Later, Hong Kong's internationally-known companies will be selected for listing on Nasdaq.
The agreement for co-listing signed in December further deepens a working relationship established by the two exchanges two years ago. The Hong Kong pilot is the latest move by the US exchange to establish a global reach in Europe and Asia.
John Wall, Nasdaq's international president, told ASIA TODAY in Washington: "If the Hong Kong listing is successful, we will bring it to next stage." But Wall was not prepared to reveal what the "next or other stages" will be. All that he would say is that the performance of the Nasdaq stocks in Hong Kong will be monitored every month "to see where we are". "It will be obvious to both of us whether (the co-listing) is an advantage to our investors. If it is not providing the benefits, we shouldn't bother with it."
Wall says the philosophy behind the Hong Kong arrangement -- and indeed for all Nasdaq international initiatives -- is to bring companies to where capital pools are, and to make it easier for overseas investors to invest in US stocks.
"When we bring our stocks to Hong Kong, we know we are going to lose volume to the Hong Kong exchange. Presently, the volume of trading that is being done by Hong Kong investors is brought back to the US and to Nasdaq. We think it is probably very costly to investors to do it this way. When our stocks appear in Hong Kong, trading will be done right where the investor is. Hong Kong investors will find it cheaper and more convenient to trade US stocks in Hong Kong. If that happens, then we are giving something to our investors."
Wall says a tremendous amount of work has been done to set up accounts at the (US) National Clearing Corporation and the Hong Kong Clearing Company. These accounts will provide a simple mechanism to facilitate clearance and settlement of cross-border investment. The viability for cross-listing, and therefore cross-border trading, depends on the level of infrastructure in place.
In all likelihood, the model of the Hong Kong co-listing agreement will be used when Nasdaq finalises a similar agreement to co-list Nasdaq stocks on the Australian Stock Exchange (ASX). The two exchanges signed a contract for co-operation last year, and based on that agreement, a feasibility study for co-listing is under way. Wall expects a business decision whether to proceed with co-listing to be made in two years after a thorough evaluation of the capability of ASX technology.
The rationale behind the plan is that Australian companies which now go direct to Nasdaq should also be listed on the ASX. "They shouldn't just come to Nasdaq because, from a business standpoint -- and from the investor's standpoint -- these stocks should logically be listed in their home market," he says. "They list only in the US and their stocks are not traded in Australia. That is silly. They have customers in Australia, they have operations in Australia and Australian investors know these companies -- so why shouldn't they be able to invest in them?"
But Wall says it will be optional whether Australian companies want to dual list on Nasdaq and the ASX. Wall understands that Australian companies go to the US for listing primarily because of "the tax situation". ASX officials are concerned about the growing trend of Australian (especially high-tech) companies going to Nasdaq, often bypassing the ASX. "When they (ASX officials) came to us to talk about the problem, we said one solution was to link our exchanges."
Nasdaq has been particularly active in the past year in establishing international connections. It has established Nasdaq Japan and Nasdaq Europe -- both of which provide a far more comprehensive presence of the US exchange than mere co-listing of selected Nasdaq stocks. Nasdaq Europe will help European companies seeking to list in the United States go through regulatory hurdles. Nasdaq was a founder of Easdaq some five years ago -- an ill-fated plan to establish a pan-European stock market.
"There was not enough critical mass country-by-country to really create what we have done here in the US, and that is why creating a pan-European market makes a lot of sense." The plan ran foul of European politics. Although Wall expects the same problems to occur with Nasdaq Europe, he is, nevertheless, hopeful of overcoming them. He has considerable faith in Nasdaq's business partners for the European venture. They include epartners, the venture capital fund of News Corporation; Vi-venture Capital, a fund controlled by Vivendi, a French conglomerate with wide-ranging interests; and Japan's Softbank Corporation, whose group of technology companies include E-trade, a fledging online brokerage. Softbank, controlled by Japan's rising enterpreneur and budding version of Bill Gates, Masayoshi Son, is Nasdaq's partner in Japan. Son and Nasdaq formed Nasdaq Japan, which is due to be operational at the end of 2000.
"We are creating all new technology -- what you will see in Nasdaq Japan or Nasdaq Europe will not be the same technology as in Nasdaq US because we have been able to bring technology three to five steps forward," says Wall. Nasdaq will bring the largest US companies to Japan, but Wall says obviously it cannot bring Japanese companies to the US unless, of course, they are already registered with the US Securities Exchange Commission.
Nasdaq Japan will attract young entrepreneurial Japanese companies which do not have the opportunity to list on the Tokyo or Osaka stock exchanges. Globalisation of investment is the result of globalisation and consummerism. It is all about global commerce -- and global companies need capital from everywhere, says Wall.
Hong Kong launched its Growth Enterprise Market (GEM) in December to establish an exchange for companies which do not have the track-record to list on the main Hong Kong Stock Exchange. Many countries in the region either have a second board or aspire to one which will launch their own high-tech start-ups. The trend is of little concern to Nasdaq executives. Wall sees distinctly different roles for the national second boards and Nasdaq -- with the former catering to companies seeking to raise capital in their domestic markets to fund their domestic operations. These are not the types of companies that will require a listing on Nasdaq Japan or Nasdaq Europe.
Wall has travelled widely in Asia to recruit highly prospective Asian technology companies. Singapore's Pacific.Net and China's China.com were among the most spectacular Asian listings on Nasdaq in 1999. "Many more (Asian companies) will be coming to Nasdaq and they could be even bigger successes. There are some tremendous companies in Asia," says Wall. He says there are good companies in Taiwan and South Korea. Nasdaq started trading a Korean company last week and the first Taiwanese companies to list on Nasdaq are Micronics and ASE Testing, part of the ASE group.
Nasdaq has listed around 18 companies from Hong Kong and about two dozen from Japan. Of the 5,000 companies listed on Nasdaq, says Wall, 800-900 could list with the New York Stock Exchange but have chosen to stay with Nasdaq. The retention rate is 98 per cent.
Since its inception, Nasdaq has been a beacon for young start-ups which have grown into blue chip technology companies, like Microsoft and Intel. "It isn't just young technology companies that need capital. We also give the major companies access to raise capital," says Wall. The five largest companies in the US in terms of capitalisation include Microsoft, Intel and Cisco, yet they need capital just like anyone else. "These companies need to get capital not only in the US but outside the US as they market global products.
"Now if you take a product like Microsoft, if an investor in Osaka or Hong Kong makes his own judgment -- as a consumer -- that he would like to be part of the success of the company, the opportunity should be available for the investor to do that. Or if an investor in Sydney wants to sell his Microsoft shares, he should be able to sell them at the best price possible -- to investors anywhere in the world." Traditional exchanges obstruct such cross-border transactions because they protect their own markets.
Wall says Nasdaq gets a lot of resistance from these exchanges and the logical move is to link with these markets so that they share the profits of cross-border trading. He says some exchanges which have not invested in new technology must understand that they may not be around for much longer -- or, if they survive, they will become irrelevant.
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