International Financing Review September 8 2018 21People
&Markets
US top finance hub and UK
well ahead of EU rivals
The UK lags well behind the US as the top
global financial centre but it is some distance
ahead of any other European country and is
unlikely to be displaced after Brexit,
according to a study released last week.
The study by think-tank New Financial
showed the US was by some distance the leading
global financial centre for both domestic and
international banking and finance activity.
The UK ranked second, and in terms of
international finance activity - the area most
at risk after the country leaves the European
Union next year - it was three times larger
than Germany and four times bigger than
France. (see chart)
The New Financial International Financial
Centres Index was based mainly on
measurements of the value and scale of
banking and financial activity, rather than
more subjective measures used in other
studies, the authors of the report said. It
assessed activity in 48 countries across 28
metrics, half of them on domestic financial
activity and half on international business.
The US scored 79 out of 100 in the study,
almost double the 40 scored by the UK. Chinaranked third with a score of 29, closely followed
by Japan, Hong Kong and Luxembourg.
Germany, France and the Netherlands
were seventh, eighth and ninth in the
rankings, and the authors said as Brexit
looms it shows the gap is wider than other
studies suggest and the difficulty other
European countries will have in closing it.
“Our rankings highlight the dominance of the
UK as a financial centre in Europe in terms of thevalue of financial activity. On raw financial
metrics the UK is nearly three times larger than
France or Germany,” the report said.INTERNATIONAL EXPOSURE
The US is way out in front of all other countries,
however. Other studies often rank cities, and
typically London and New York vie for top spot
in terms of the leading financial centre.
In the New Financial study, the US has by
far the biggest market for domestic financial
activity, followed by China, largely reflecting
the size of the US economy and its financial
system. The domestic measures included the
size of bank assets, the value of pension and
insurance assets, stock markets, bond
markets and corporate activity.
The international rankings are a clearer
reflection of the size and depth of financial
centres, the report said. The measures were
primarily based on the location of activities,
such as where hedge fund assets are
managed or where foreign exchange or
derivatives trades take place.
The US ranked first on international
measures with a score of 72 out of 100,
followed by the UK with a score of 46,
Luxembourg with 26, and Hong Kong with 25.
Those four countries ranked well ahead of a
batch of five more countries - Germany, Japan,
the Netherlands, Singapore and France.
Steve SlaterChina reveals London Connect blueprint
Investors are gearing up for the launch of the
long-awaited Shanghai-London Stock Connect
scheme after China’s securities regulator
published draft rules for the new trading link
and signalled its intention to go live by year-end.
The draft rules published by the China
Securities Regulatory Commission offer the first
detailed look at how Shanghai-London Connect
will operate since it was mooted in 2015.
Unlike existing trading links between
Hong Kong and bourses in Shanghai and
Shenzhen, Shanghai-London Connect will
only allow investors to buy foreign stocks
indirectly in the form of depositary receipts.
Market observers welcomed the
announcement, although most held back
from predicting that the latest initiative
would rival Hong Kong’s existing links.
“I think London will bring a certain amount
of incremental flow, but how large that flow
will be is hard to tell at this stage,” said Nicholas
Chui, senior investment manager for China
equities at Aberdeen Standard Investments.
“It’s no use just creating the pipes if
underlying investors do not want to invest. The
recent improvements in corporate governancein China should help deliver more flows. MSCI
inclusion could act as a catalyst as well. But with
these schemes, the devil is always in the detail.”SMOOTHER SAILING
Companies listed on the LONDON STOCK
EXCHANGE will be able to issue Chinese
depositary receipts on the SHANGHAI STOCK
EXCHANGE, while SSE-listed companies will
issue global depositary receipts on the LSE.
The major difference between the two is
that LSE-listed companies can only issue
CDRs backed by existing shares, at least for
the time being, whereas Chinese companies
are able to issue GDRs backed by new shares.
The CSRC said there would be limitations
on the maximum issuance volume for both
CDRs and GDRs, without providing further
details. Sources told IFR that companies will
be allowed to issue up to 15% of their total
share capital in GDR format. It is unclear what
restrictions will be attached to CDR issues.
Both CDRs and GDRs will be fully
convertible with an issuer’s listed shares,
although there will be a six-month lock-up
period after a GDR listing. If the controllingshareholder of the GDR issuer participates
in the GDR IPO, it will be unable to sell the
shares purchased for at least 36 months.
Unlike the first Hong Kong Connect
scheme, which was plagued at its launch by
issues around beneficial ownership and
taxation, market observers predict the
launch of Shanghai-London Connect will be
much smoother now that these issues have
been resolved.
“In terms of the nuts and bolts, I think
around 80% of the issues have already been
resolved through Hong Kong Connect,” said
Alexious Lee, head of China capital access at
CLSA. “Remaining issues, such as currency,
trading hours and how the pre-market and
post-market trading structure will work, still
need to be addressed though.”CURRENCY CONUNDRUM
The CSRC did not refer to currency in its
consultation, although sources told IFR that
GDR issuances will initially be denominated
in US dollars, with the possibility of
expanding to renminbi or sterling later.
Thomas BlottSource: New Financial International Financial Centres IndexIrelandFranceSingaporeNetherlandsJapanGermanyHong KongLuxembourgUKUS01020304050607080TOP 10 INTERNATIONAL FINANCIAL CENTRES
NEW STUDY SCORES COUNTRIES OUT OF 100 BASED
ON INTERNATIONAL FINANCIAL ACTIVITY
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