Over the past ten years, the mergers and acquisitions of stock exchanges have become an important global trend. To cope with challenges posed by emerging competitors as well as new technology, both HKEX and the LSE have been seeking merger partners. In terms of the aggregate market value of listed companies, HKEX and the LSE are the world's sixth and seventh biggest stock exchanges respectively. The merger will create a stock exchange that is the third biggest in the world after the New York Stock Exchange and the Nasdaq Stock Market. Charles Li, chief executive of HKEX, describes the proposal as the "union of the century". The merger will create a global market platform that operates continuously for eighteen hours every day. As The New York Times has pointed out, if the merger is successful, the US's stock exchanges will be challenged by a formidable and emboldened competitor.
HKEX's "proposal" is a year in the making. HKEX and the LSE have their respective strengths and as such are highly complementary. The LSE handles the trading sessions in Europe and the US, and Hong Kong, the Asian ones. London is the offshore US-dollar financial centre, while Hong Kong is the global offshore renminbi business hub. The LSE targets the fully fledged markets in Europe and the US, while HKEX mainly serves the emerging markets in Asia. In recent years, the LSE has been striving to enter the Asian market. It created the Shanghai-London stock connect with the Shanghai Stock Exchange. As for Hong Kong, as of today mainland companies account for over 60% of the overall market value of Hong Kong stocks. In recent years, HKEX has gone on an internationalisation drive not only to strengthen itself but also to prevent over-reliance on the mainland economy.
The status of an international financial centre is not what a city can accord to itself — the city has to earn it. And it cannot sit on its laurels. Brexit has cast a shadow over London's status as an international financial centre. Meanwhile Hong Kong, which is China's international financial centre, has been buffeted by the anti-amendment storm. It remains uncertain whether Hong Kong's status will undergo any changes in the long term. The merger of the two exchanges will not only generate synergy but also go a long way towards strengthening both regions' status as international financial centres.
The financial industry is at the core of modern capitalism. The symbol of a region's capital strength, a stock exchange is not only the foundation for the financial industry but also an important strategic asset. The British government has been reluctant to put the LSE in the hands of outsiders, and the proposed merger between Hong Kong and London stock exchanges has even got on the nerves of not only Britain but also the west. The Financial Times says that the LSE is inclined to reject the offer, with one of the reasons being misgivings over political risk.
The more internationalised Hong Kong's financial sector and economy are, the more manifest Hong Kong's uniqueness and importance will be. This will not only help enhance its competitiveness but also increase Hong Kong's bargaining power in the face of players from all sides. There might be many obstacles in the way of the Hong Kong-London union proposed by HKEX, but as Charles Li has said, one will never succeed if one does not try. As far as the element of financial internationalisation in Hong Kong is concerned, the more manifest the better. Hong Kong has to persevere in this aspect even if changes in the international situation are making the work all the more arduous.