Next week, at the first in-person World Economic Forum in two years, Nicolas Aguzin will try to persuade leaders and officials that China is open for business.
The chief executive of the Hong Kong stock exchange – a former JPMorgan banker and its first non-Chinese boss – was appointed a year ago to accelerate the integration of the Chinese economy into international finance.
“The main goal of everything we try to do is to make sure that we continue to connect China and the world,” Aguzin told the Financial Times. “I’m not saying it’s an easy program, [but] that’s what we have to do.
But since he took office, the decoupling between China and the United States has intensified. Growth in China is being strangled by lockdowns to reach ‘zero-Covid’ as Beijing pursues a regulatory crackdown that has wiped trillions of dollars from companies’ market value and led to a global pullback from Chinese stocks.
“He is a victim of circumstances,” said a person close to HKEX’s board. “The charitable way to interpret it is to say that he was prevented from starting – another way of saying that he did not accomplish much.”
The plan to strengthen HKEX’s role as a bridge between East and West has been “rejected at this time due to the US’s tough stance on China”, the person added.
After being cut off from the international financial community since early 2020 – Hong Kong only lifted restrictions on non-residents entering the city in May – Aguzin will lead the HKEX delegation to Davos alongside Laura Cha, her president and a seasoned businesswoman from Hong Kong.
For Aguzin, who does not speak Mandarin, maintaining good relations with Beijing means relying on HKEX Chairman Cha, who was Beijing’s deputy finance minister in the early 2000s.
“HKEX is a very political place,” said a senior financier in Hong Kong who knows both Aguzin and Cha. “I don’t know if anyone is going to do this job well, there are a lot of people you have to keep happy.
The trip to Davos comes after Aguzin made his first visit to mainland China as managing director of HKEX in March. He has been called to Beijing as President Xi Jinping’s government prepares to further open up China’s capital markets and strives to invest up to $50 billion in household assets outside its borders. .
Aguzin, an Argentinian who goes by his childhood nickname “Gucho”, said Beijing officials expressed “significant interest in ensuring Hong Kong is plugged into the international market” during his visit.
That means preserving ties between the world’s two largest economies, Aguzin said. “All we’re doing today is trying to avoid these forces that we see. . . technological decoupling and trade also come to a halt. No interactions [between China and the west] can’t be good for anyone.
Rising tensions between China and the United States, compounded by war in Ukraine and the threat of sanctions, have strained Hong Kong’s role as a financial intermediary between the two superpowers.
“The geopolitical environment is very sensitive right now,” Aguzin said. “The combination of geopolitics [and] the pandemic made the bridge a bit more difficult.
HKEX reported its worst quarterly profit in two years in March. Hong Kong’s total equity fundraising in the first quarter fell 90% from a year ago to the lowest level since the global financial crisis, while the market value of HKEX fell by about a quarter – or about $19 billion – since Agugin took over last May.
Critics say HKEX has become too reliant on Chinese capital, with Chinese companies accounting for nearly 80% of Hong Kong’s HK$37.6 billion ($4.8 billion) stock market.
“They should have done a lot more over the past 30 years to promote Hong Kong as an Asian financial hub and not just a mainland Chinese financial hub,” said David Webb, a former board member of HKEX.
But, he added, “it’s never too late, and they seem to realize they’re overexposed to an economy.”
Diversification attempts included a failed bid to buy the London Stock Exchange in 2019 under Aguzin’s predecessor, Charles Li.
This year Aguzin secured the IPO of yacht builder Ferretti, the first Hong Kong listing by an Italian company in more than a decade, despite raising just $243 million and its shares are trading below their listing price.
In the past, the focus on China was not such a problem. “I never lose sleep if we don’t have a lot of international listings,” said a former HKEX executive.
“As long as Chinese companies come here because of international capital, and international capital comes here because of Chinese listings, it’s the perfect match.”
This model is being tested by deteriorating US-China relations and Beijing’s regulatory onslaught. A push by Aguzin to internationalize HKEX through a foreign acquisition would likely be complicated by the risk of U.S. sanctions for any target company, according to people familiar with the exchange.
The governance of HKEX, which includes several political appointees from the Hong Kong government, has hampered overseas expansion talks in the past, according to one of the people.
“I won’t turn a blind eye to any international opportunity,” Aguzin said, “but I also recognize that it’s really hard to do.”
Hong Kong has not benefited from an expected boom in transactions redirected from the United States after Beijing launched a cybersecurity probe into ride-hailing app Didi Chuxing shortly after its IPO in New York. A year later, it is unclear whether Beijing will greenlight Hong Kong listings of Didi or other companies with sensitive data.
Sales of ‘Homecoming’ shares of Chinese companies on Wall Street have slowed in Hong Kong even as the US warned it would delist 270 Chinese companies by 2024 due to access to information financial audit.
The sourness of the market vis-à-vis China has led to a “traffic jam”, according to the second executive close to the exchange. About 150 companies – all but four from Greater China – have been given the green light by HKEX but have not yet listed their shares, according to Dealogic data.
“If you’re trying to project what’s going to happen in the next three or four months or even next year, it’s going to be very, very difficult,” Aguzin said, citing “soft” valuations for tech stocks and the slowdown. IPOs. “But if you look at the next five or 10 years, the opportunities are enormous.”
Seizing the opportunity requires reform, Aguzin said. HKEX has been criticized for its notoriously high barriers to entry, such as minimum profit requirements, which make its listings more costly and time-consuming compared to New York or London.
In January, HKEX changed rules to make it easier for overseas-listed Chinese companies to make secondary stock sales and opened the exchange to Spacs. However, the reforms were “cautious”, according to a person on one of HKEX’s advisory boards, noting that Spac listings in Hong Kong were much more expensive than rival exchanges.
Aguzin is also facing pressure in the UK where the Financial Conduct Authority is investigating a fiasco at the London Metal Exchange – which is 100% owned by HKEX – which suspended the world’s main nickel market for days.
It’s another headache for Aguzin as he heads to Davos to salvage a tough year in charge of the Hong Kong exchange, but he’s clear on his mission.
“What I want to make sure is that we can just maintain that connectivity,” he said. “I’m not looking for the Gucho statue.”
Additional reporting by Stephen Morris in London