April 17, 2020 infosol

Undercurrent 9: London Stock Exchange & Its Dance with Asian Exchanges

19 Undercurrents with Ramifications That Go Beyond Twenty20

LSE & Future Global Exchange Alliances

  •  Late in 2019 Hong Kong Stock Exchange (KHEX) proposed to buy the LSE for US$36bn
  • The LSE swiftly rejected the offer and with a dash of dismissiveness – London was interested in SSE
  • In hindsight one could argue that LSE should have reacted a bit more savvy and strategically
  • LSE could have counter offered a conditional trilateral merger including Shanghai Stock Exchange
  • LSE should “hit two birds with one stone” and London would send a strategic message to Beijing
  • This would have allowed LSE to establish a strong foothold in Asia’s deal flow & capital formation
  • Moving forward capital markets in Asia will become very important for E.U & U.K exchanges
  • China went to the pandemic in a FIFO model: First In –First Out and so did its stock exchanges

 Keep an Eye On

Hong Kong Stock Exchange may re-approach the LSE in Q1 2021 and put up a new charm offensive. LSE’s acquisition of Refinitiv is still to take full closure in Q2 of 2020 as market expects.

On the other side the intricacies that stalled the London Shanghai Stock Connect were more tied to political nuances between London and Beijing and H.K crises. The core rational of allowing Chinese companies, private and SOEs to raise USD, GBP or Euros on the LSE remains intact and London’s appetite for that business has only grown as a result of crises.

In a post COVID-19 the world politics will be different. Many “Geopolitical-Distancing” of the past may have to give way into new levels of intimacy as a result of the brutal economic climate that many countries will face. LSE could position itself as the preferred exchange for future multi-dimensional listings. For that it has to take the co-development and in more ways champion a leading role for a trilateral exchange with HKEX & SSE.

Chinese companies will continue thier acquisitions in U.K and beyond just British Steel. Companies like Aston Martin may very well end up in hands of the likes of Geely Auto or other groups.

The investment by companies like Fosun in medical and healthcare sector will increase. Many Growth Companies in the healthcare and biotech in the U.K may soon have Asian benefactors. Fosun has already mobilised to find a vaccine for COVID-19 in collaboration with E.U based firms.

Emerging markets will face some very hard and harsh weeks and months ahead. Yet their relevance in different global value chains will not evaporate overnight. They will soon figure out that their exports in minerals, raw material and produce can fetch much more if they are able to bring technology, infrastructure and industries to generate added value to their endowments. They will need to raise capital and the biggest appetite may rest in China to continue investing in these economies.

Positioning London for strategic alliances with capital markets in Asia, and tying London’s expertise in law and legal, reliable courts and finesse in service sector, including engineering and project management could provide U.K economy with the right pivot and greater role in Belt Road Initiative.

In absence of innovative bold moves, scarce funding, drawn down fiscal coffers in many capitals the good old Barter may be back. Perhaps this time with a 21st century twist supported by block chain and digital platforms. We may witness the marriage of new tech and old methods growingly in our trade.

In between let us barter courage, hope and creativity to shape new constellations for a better future!

Ali Borhani is the Managing Director of 3Sixty Strategic Advisors Ltd. It is the readers’ responsibility to verify their own
facts. The views and opinions expressed in this article/commentary are those of the author’s and do not necessarily reflect the official policy or position of any other individual, agency, organization, employer or company.