After BABA completed the secondary listing of Hong Kong stocks, we believe that the return of Chinese stocks to Hong Kong stocks listing is a new trend worthy of attention, and about 20 Chinese stocks may initially meet the requirements.

If these Chinese stocks gradually return to Hong Kong stocks, it will help to enliven Hong Kong stocks, consolidate Hong Kong's leading position in the global equity financing market, and further enhance Hong Kong's role as a bridgehead for investing in China, especially China's new economy. If it is combined with the potential upgrading of the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism in the future and the adjustment of the rules of the Hang Seng series index, it may further attract mainland capital to move southward, gradually improve the market ecology of Hong Kong stocks and A-shares, and consolidate Hong Kong's position as an international financial centre.

Question 1: the general situation of the Chinese stock market

There are 234 Chinese stocks listed mainly in the United States, with a total market capitalization of about 1.2 trillion US dollars (as of February 13, 2020). Most of them come from the Internet and technology (including financial technology), consumption, medicine and other new economy sectors. The market capitalization and liquidity distribution are polarized, with 30 companies with more than 10 billion US dollars and 22 with daily average trading volume exceeding 50 million US dollars.

Question 2: what are the main rules for the return of Chinese-listed stocks to Hong Kong stocks?

After the new listing rules came into effect, Hong Kong Exchanges and Clearing added to allow three types of companies to list: 1) biotechnology companies that have not yet made a profit; 2) companies with different voting structures (WVR) that meet specific requirements; 3) companies focused on Greater China to achieve secondary listing in Hong Kong: the existing VIE structure and different voting structures can be retained, provided that the following requirements are met: 1) the market capitalization is greater than HK $40 billion. Or have a market capitalization of more than HK $10 billion and make a profit of not less than HK $1 billion in the last fiscal year; 2) be listed on the eligible exchange before December 15, 2017. We believe that the most convenient option for the return of US-listed Chinese stocks may be the third category of conditions.

Question 3: what are the general considerations for the return of Chinese stocks to the listing of Hong Kong stocks?

The continuous upgrading of market rules in the Hong Kong stock market and A-share market has objectively increased the inclusiveness and attractiveness of listing for different types of companies. Chinese stocks may choose to return to Hong Kong or A-share listings with the following considerations: financing for business development and increasing stock liquidity, being closer to the home market, obtaining better valuations and reducing regulatory risks faced by Chinese stocks in the new Sino-US relationship situation, and so on.

Question 4: which Chinese stocks have returned to Hong Kong stocks, and how are they doing?

At present, Chinese stocks mainly listed in US stocks, including BABA and BeiGene, Ltd., have been listed in both US and Hong Kong stocks. BABA's return to Hong Kong shares are subject to the above third category of conditions, issuing 500m shares in Hong Kong, raising nearly HK $100 billion, and valuing the issue price at 23.7times rolling earnings / 5.9times book value. BABA has an average daily trading volume of HK $9 billion in the first five days of listing in Hong Kong, and since then, the average daily trading volume has been about HK $3.2 billion, corresponding to a daily turnover rate of 2.6%. Trading is more active.

Question 5: what is the possible impact of the return of US-listed stocks?

The listing of Chinese stocks and potential leading companies in the new economy in Hong Kong will make Hong Kong listed companies more diversified, enhance the attractiveness of Hong Kong stocks to listed companies and investors, especially mainland investors, and improve the ecology of the Hong Kong market. If combined with the possible upgrading of the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism in the future and the adjustment of the Hang Seng series index, this will promote the integration of Hong Kong stocks and mainland A-shares, improve the market ecology of the two places, and consolidate Hong Kong's position as an international financial centre.

Question 6: which other Chinese stocks may initially meet the conditions for the return?

We have sorted out 234 US-listed companies according to four conditions: 1) they have been listed on US stocks before December 15, 2017; 2) they belong to the consumption, science and technology, medicine and other fields of the new economy; 3) the market capitalization is more than HK $40 billion; or 4) the market capitalization is more than HK $10 billion and the annual profit in 2018 is more than HK $1 billion. There are 19 Chinese stocks that initially meet the above conditions, with a total market capitalization of about US $340 billion. Assuming that these companies gradually return to Hong Kong shares over the next year or two, issuing an average of about 10 per cent of new shares, the potential financing is about $34 billion.

The 19 US-listed stocks include:JD.com, Baidu, Inc., NetEase, TAL Education, New Oriental Education & Technology Group, TRIP COM GRP LTD, ZTO Express, Yum China, Huazhu, Autohome Inc, Vipshop, GDS Holdings Limited, 58.com, Momo Inc, 51job Inc, JOYY Inc era, Taibang Biology, etc..