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Hong Kong exchange boss: London Stock Exchange deal will unlock 'tidal wave' of Chinese cash

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Charles Li, chief executive of Hong Kong Exchanges and Clearing Limited. Photo: Bobby Yip/Reuters

The chief executive of Hong Kong Exchanges and Clearing (HKEX) has made an impassioned plea for the London Stock Exchange (LSE.L) to reconsider a £32bn takeover bid made at the start of the month.

“Together we complete each other,” Charles Li, HKEX (0388.HK) CEO, said at the SIBOS conference in London on Tuesday.

“Together we will unlock the last frontier of the global financial centre — the $27 trillion sitting in the Chinese banking system.

“We know gravity is such that water up there is going to the sea, it’s going to find a way to pour into the global sink. Even if we think that only 10%, 20% [of Chinese wealth] is ultimately going to get to the global market we are talking about tidal waves of wealth deployment globally.”

READ MORE: Surprise £32bn takeover bid from Hong Kong for London Stock Exchange

HKEX made a surprise £32bn bid for the London Stock Exchange Group (LSE) earlier this month, which was quickly rejected. HKEX has vowed to continue its pursuit despite LSE’s focus on a separate transaction with data group Refinitiv.

Fortuitous scheduling meant Li appeared on stage at banking conference SIBOS directly after David Schwimmer, the CEO of LSE. Schwimmer largely avoided talking about the HKEX deal but Li spent half an hour arguing at length about why it made sense.

“Our idea for the transaction is a very simple vision but a very big dream: together we’re going to create an unrivalled global market infrastructure group,” Li said.

“This is a time, in our view, when the world is becoming more and more polarised between east and west, the two centres of gravity. We need to have market infrastructure globally that are able to underpin those great two centres of gravity.”

READ MORE: London Stock Exchange rejects £32bn Hong Kong takeover bid

Earlier, Schwimmer had argued that the London Stock Exchange’s partnership with the Shanghai stock market was already fulfilling this dream.

“For the long term we view Shanghai as the financial centre for China,” Schwimmer said, adding that capital controls preventing Chinese money leaving the country would likely be relaxed overtime.

Li said capital controls “will continue to be with us in our generation” but Hong Kong had already figured out a way to allow Chinese investors to tap into its market through a series of “connect” agreements.

“For every $100 trading, $10 market cap gets created, $1 money actually flows across the border,” he said. “That is just wonderful news for China because they allow their investors to deploy their international wealth on a global scale.

“If we can partner with London, all the London products can be in that mall in Hong Kong so that Chinese investors, in the Asian timezone, in their day, they can look at the mall, the mall has Chinese stocks, Hong Kong stocks, Asian stocks, London stocks, European stocks.”

Li said he regretted the timing of the takeover offer, which surprised both the market and the LSE board. Hong Kong had wanted to wait until Brexit was resolved, Li said, but were forced to act when LSE proposed a $27bn takeover of data group Refinitiv in August.

“Events overtook itself,” Li said, “We realised it was now or never.

“If I was sitting in David’s shoes, I would reject Charles Li. I accept that. But I think the opportunity is such that London investors deserve a look at it.”

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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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