Growing appeal

Meanwhile, there may be some good news on the horizon. Hong Kong Exchanges and Clearing, which runs the city's bourse, may further ease its listing criteria to attract money-losing, high-technology firms — a proposal drawn from the experience of introducing Chapter 18A, which opened the bourse's doors to pre-revenue biotech companies.

HKEX's efforts have proved effective in the past few years in entrenching the SAR's status as an offshore fundraising hub for Chinese companies. A very telling example is the wave of homecoming listings on the heels of the bourse's listing rule changes in 2018 that allowed companies from "emerging and innovative sectors" to go public with weighted voting rights — a share structure widely adopted by new-economy mainland firms to raise capital without their founders losing control.

Since January, HKEX has made further amendments to enable mainland firms with weighted voting rights and variable interest entity structures to carry out dual primary listings in the city, paving the way for heavyweights like Alibaba to hedge against delisting risks and foster a wider investor base through upgrade listing plans.

"What the city's stock exchange has been doing in recent years is to provide a variety of listing options based on the market's specific needs," says Au, adding that both Hong Kong and mainland firms have benefitted from the improved listing regime.

With the mainland companies' vibrant relationship with the US drawing to a close, and links between Hong Kong and the mainland deepening, there are growing calls to forge a more comprehensive ecosystem to keep up with the financial center's increasing appeal of a primary listing venue.

Au believes it's the right time for Hong Kong to bolster the Stock Connect program with the mainland while promoting yuan-denominated stock trading to "mitigate foreign exchange risks", saying, "This can attract more Chinese (mainland) companies to Hong Kong for primary or secondary listings and more investors to invest here."

Choi suggests that the Hong Kong Stock Exchange should launch more "innovative regimes and products"; for instance, a separate "new tech board" on top of its main and Growth Enterprise Market boards.

The proposed new tech board, with certain exemptions and a specialized regulation committee, is expected to facilitate emerging tech companies that may not qualify to raise funds in Hong Kong at present, while safeguarding investors' interests. This may also attract some mainland companies caught in the US delisting crunch.

"In addition to the official listing committee, the new tech board's committee can bring in investors, scientists and reputable people with specialized knowledge to oversee its operations so that it can help make up for the lowering of the income threshold or profit requirement," says Choi.

Wayne Yu, a professor at the City University of Hong Kong's economics and finance department, says it's important to strike a balance between investor protection and market development in the face of a potential mass delisting of Chinese companies in New York — firms that may then seek a primary share sale in the SAR.

Compared with the US market, share issuing companies or IPO candidates in Hong Kong are more regulated, but fewer disclosures are required. That makes it crucial for the city to introduce practices, such as class action — a legal proceeding originated in the US that can protect minority shareholders' interests — Yu says.

"However, it's not a task that Hong Kong's stock exchange can accomplish on its own," he says. "Other parties, such as our media, law firms and institutional investors, should all take up more responsibilities and move in sync with the healthy development of the market."