Room for another stock exchange?

The Greater Bay Area already has two stock exchanges (Hong Kong and Shenzhen). Will there be another? Macau is starting to explore the possibility of hosting a stock exchange that would be unique: offshore, with no capital controls, like Hong Kong, yet traded and settled in RMB, like Shenzhen.

Chan Sau San, chairman of the Macau Monetary Authority (AMCM), raised more than a few eyebrows around the region recently when he gave an interview to the mainland’s Securities Times, saying that Macau was looking into the possibility of establishing a stock exchange. 

He wasn’t speaking out of his hat. The Greater Bay Area masterplan, released on February 18 this year, specifically mentions the need to “explore the possibility of setting up an RMB-denominated stock market in Macau”. The Authority is simply planning a feasibility study in this regard. 

According to Chan, in view of Macau’s proximity to many well-established financial centers, it is imperative for the SAR to have a profound understanding of its own capabilities before it makes any moves in developing new financial services. Therefore, the feasibility study will follow the principles of “giving full play to Macau’s advantages and serving the needs of the country”, and will craft a plan based on the country’s strategic development direction for the Greater Bay Area.

To be sure, given that Hong Kong and Shenzhen already have well-established stock exchanges, as well as the proximity of two others in Taipei and Shanghai, the starting point of any study for Macau having its own must begin with: Is this possible? Are the basic conditions in place and are there supporting facilities in the SAR’s financial sector? Is the legal environment compatible?

The Greater Bay Area masterplan, specifically mentions the need to “explore the possibility of setting up an RMB-denominated stock market in Macau”

From Macau’s point of view, of course, it is hard not to see the attractiveness of the proposal. 

Macau is positioned as a world tourism and leisure center and a service platform for business and trade cooperation between China and Portuguese-speaking  countries. However, Macau currently has a relatively simple economic structure and limited resources, and has not yet reached significant scale as a China-Lusophone platform. Therefore, if this proposal is to be taken seriously, a hard look needs to be taken at what concrete benefit it could bring to Macau. 

Firstly, as Macau continues to build a world tourism and leisure center, it must be recognized that it has an enormous flow of capital into and out of itsindustry. If a stock exchange is to be established here, it could tap into these flows, which could play a role in boosting the diversification of the economy by promoting the listing of Macau businesses and the development of various support industries related to the gaming industry.

Secondly, Macau is being built into a service platform for investment and trade between China and Portuguese-speaking (Lusophone) countries. A stock exchange could support the listing and trading of stocks and other securities of companies engaged in this business. Such a platform would greatly help Macau to build a Renminbi clearing center for trade with Lusophone countries, and boost trade in goods and services between China and Lusophone countries. Moreover, it would position Macau as an offshore financial center for mainland companies.

As Macau continues to build a world tourism and leisure center, it must be recognized that it has an enormous flow of capital.

Thirdly, the stock exchange would enable Macau to serve as a reservoir of foreign exchange. Because securities would be denominated in RMB, Macau could play a leading role in the internationalization of the Chinese currency.

The upside of the proposal is easy to see. However, dreams are one thing; reality is another. Is Macau up to the task? Is the SAR’s financial sector capable of supporting the development of a stock market? Is the legal environment and policy structure in place? Moreover, how would the Macau stock exchange relate to, and interact with, the other regional exchanges in Hong Kong and Shenzhen? These and other important questions need to be addressed. Look forward to our next issue to learn more.

Editor’s note

Macau is reportedly exploring the feasibility of setting up a stock exchange, as was mentioned in the Greater Bay Area masterplan. There are many factors to consider, and it appears to be early days yet in the plan’s development. Nevertheless, the idea has merits, and Macau Inc. begins here a special series devoted to the subject. This article offers a bird’s eye view of the proposal. In our next issue (July), we will invite political and business leaders from across the Greater Bay Area to join an in-depth dialogue on the question: “Is Macau ready for a stock exchange?” Reader feedback is most welcome at info@macauinc.com