Two months ago Hong Kong pulled together its competing and somewhat infamous stock exchanges and put them in a posh computer room in a gleaming high-rise in the center of Hong Kong's stunning waterfront. There was a lot of symbolism in that. It not only made the stock exchange the centerpiece of finance in this British colony, but it also brought stock dealing into the cold light of day.
In a city where it is not unusual to see Chinese workers crowded around electronic stock quotation boards around town, and where insider trading has been legend, making the markets safer and simpler has to be a welcome move.
But the aim of the merger of the four exchanges was also to make it easier for foreigners to deal with the Hong Kong investment market. And there was equally an eye on the emergence of Tokyo as a financial superpower and on the eventual control that Peking will exercise over Hong Kong. Shady exchanges could prove a propaganda windfall for Chinese Marxists.
Like almost everyone else here, brokers and officials of the stock exchange are most concerned about what might happen to the investment climate in Hong Kong during the run-up to the 1997 hand-over to China.
``The stock exchange is more sensitive than the actual economy [to the 1997 issue], because stock exchanges are built on anticipation,'' exchange vice-chairman Charles Sin notes.
Since December 1984, when the joint Sino-British declaration on the future of Hong Kong was issued, financial markets have calmed here. Capital flight has slowed, perhaps reversed. And the stock market, as measured by the Hang Seng index, is just shy of record levels.
But Peking is not the only concern of the Hong Kong financial community. There have been banking and shipping scandals that have shaken the market. Moreover, Tokyo's increasing dominance of international finance in this region threatens Hong Kong's one-time status as the world's third major financial center after New York and London.
All good reasons to streamline.
On April 1, Hong Kong's four competing and lightly regulated exchanges were unified under the banner of the Stock Exchange of Hong Kong Ltd., or the Unified Exchange. That eliminated four competing listing requirements and vastly simplified the work of the Securities and Commodities Trading Commission.
As exchange chairman Ronald Li observed at the opening of the Unified Exchange, in the past, ``with four exchanges, overseas investors found it baffling and so stayed out of Hong Kong.''
Separately, the exchanges (the 120-year-old Hong Kong Exchange and the three upstarts of the past two decades, the Far East Exchange, the Kam Ngan Stock Exchange, and the Kowloon Stock Exchange) had limited ability to expand into the international market. Telecommunications and computer costs, for instance, were prohibitive.
But unification was set in motion in 1977 and completed just two months ago. It was accomplished largely because the Securities and Commodities Trading Commission ``forced the issue,'' says Philip Thorpe, an official with that body.
Before April 2, only individuals or brokers could be members of the exchange; now corporations can join, and most bank prohibitions have been removed. That, says Mr. Thorpe, should ensure greater participation, and the corporations have a vested interest in improving the self-regulating standards of the exchange.
Some 290 shares are listed on the Hong Kong exchange, along with several dozen warrants, bonds, unit trusts, and preferred stocks. About 50 percent of the trading is by institutions, Mr. Sin says.
``The market's volatile because of the few number of shares,'' Mr. Sin says.
With total turnover of about $10 billion last year, a big pension fund or mutual fund from the United States could allocate just a few percentage points of its international portfolio to Hong Kong and move the market.
Sin says individual investors here tend to jump in and out of the market quickly. They were burned in 1973, he says, when the market crashed (the Hang Seng index dived from 1,700 points to 600), ``and they have been much more cautious since then.''
The stock market is composed mostly of property companies (in land-poor Hong Kong, property is big, big business), consolidated enterprises headed mostly by Chinese businessmen, and utilities.
Because of the unresolved problem of Hong Kong's future, property companies dragged down the market in '82, '83, and '84. They have risen since then, but meanwhile, Sin says, industrial companies still don't have the confidence to ``settle down and order new machinery.''
Nevertheless, he says foreign investors, particularly from the US, ``are buying quality stocks here.''
The rush of US pension and mutual funds into foreign stocks in the past 18 months, says Alan Hargreaves at the Hoare, Govett brokerage office in Hong Kong, has generally meant that 3 to 6 percent of an institutional investor's international portfolio goes to Hong Kong.
``Through the years, Hong Kong was unacceptable to the `widow and orphan' fund,'' Mr. Hargreaves notes, ``but not now.''
That seems to mean making the Hong Kong exchange less ``baffling'' and keeping trading aboveboard is not just politically important but financially, too.