Davos Agenda

How capital markets can help shape a post-pandemic recovery

Capital markets: Urban city pictured at night: Data indicates an extra 2.5 billion people are expected to move to urban areas by 2050.

Capital markets must themselves embrace change, constantly evolving and reinventing themselves to remain relevant. Image: Pexels

Nicolas Aguzin
Chief Executive Officer, Hong Kong Exchanges and Clearing (HKEX)
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Davos Agenda

This article is part of: World Economic Forum Annual Meeting

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  • In a rapidly changing world, key forces shaping the economy include changing demographics, rapid urbanization and climate change.
  • Capital markets have an essential role to play in allocating funds to companies shaping the economy.
  • As well as supporting companies as they seek a market listing, it is also about empowering issuers and helping to drive the post-pandemic recovery.

We are living in a global age of transformation, one that has been accelerated by the COVID-19 pandemic. Alongside a world increasingly defined by shifting geopolitics, three powerful, long-term forces are shaping the new world economy: changing demographics, rapid urbanization and climate change.

As part of this transformation, we are also witnessing at a speed never seen before, the creation of new enterprises, corporations and ideas that are changing the way we live, creating new opportunities for us all.

Three forces transforming the world economy

The number of people globally aged 65 and over is projected by the UN to increase by 820 million between 2020 and 2050, meaning there will be 1.55 billion senior citizens in the world.

The implications of this change alone are far-reaching, but have special significance for global public health systems, elevating demand for all forms of healthcare, medical resources, treatments and drugs.

In addition to the ageing population, an extra 2.5 billion people are expected to move to urban areas by 2050 according to the UN. This means that city planners are increasingly having to turn to smart city technologies, such as real-time public transit information, enhanced surveillance systems and digital public services to deliver more efficient and scalable cities.

Moreover, as the world urbanizes, the opportunities for e-commerce are substantial, as are those for 5G networks – the backbone of modern communications. The global smart cities market is expected to increase to $870 billion in 2026 from $460 billion in 2021.

Davos 2022 Stakeholder Capitalism Banking and Capital Markets
The global smart cities market is expected to increase to $870 billion in 2026 from $460 billion in 2021. Image: Markets and Markets

The reality of climate change is perhaps the most urgent and pressing shift shaping our modern world. It is forcing us to rethink and recalibrate our businesses and economies; it is driving the adoption of new technologies such as clean and renewable energy sources; and it is redefining societal behaviours, priorities and cultures.

Here, we are seeing businesses putting ESG considerations front and centre, and at HKEX we have made our own commitment to achieving net-zero by 2050, hoping to inspire other corporations to do the same. It is only through actively tracking, reviewing and managing our environmental impact that we can bring about the changes that are needed.

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Globally, we have begun to see a range of inspiring innovations emerge, garnering traction and disrupting established technologies. Electric vehicles (EVs) are one excellent example, with the total number of EVs across all transport models expected to swell to almost 145 million globally by 2030, up from 1.1 million in 2020.

Companies of tomorrow are coming to the fore

The importance of innovation in helping us to adapt and thrive is well understood, but it was brought into sharp focus during the pandemic when prolonged disruptions to our everyday lives forced both countries and companies to reimagine their established ways of doing things – embracing new technologies, tools and ways of working to accelerate the digitalization of their stakeholder and employee experience. The necessity for change was a powerful impetus but it should act as a reminder to us all that change, and fast change is possible, and more often than not, beneficial.

From our vantage point at the heart of global capital markets, we are seeing the companies of tomorrow come to the fore, whether that is the progression of ambitious existing organizations or new companies with exciting and innovative ideas which address the challenges of our time.

These are the organizations that are creating and pioneering new technologies and world-changing innovations – like creating life-enhancing and prolonging drugs, supplying the sophisticated infrastructure for today’s modern and connected cities, and supporting the critical shift to clean energy. We believe they will be the change agents of our collective future.

Capital markets can power world-changing innovations

The companies of tomorrow often need to access public funding at an early stage in their development to support their ambitious plans. Similarly, investors are often on the lookout for early access to high-growth prospects.

The combination of these two presents a unique opportunity for market operators. As the new world economy takes shape, well-functioning, deep and vibrant capital markets have an essential role to play as a vital conduit to allocate capital to companies with promising prospects, support entrepreneurs, inspire innovation, power world-changing technologies and products, and generate opportunities for investors.

Hong Kong is the marketplace for the companies of tomorrow

To do this, capital markets must themselves embrace change, constantly evolving and reinventing themselves to remain relevant.

At HKEX, we have implemented a number of reforms and innovations to ensure our capital markets remain attractive, as a venue for all issuers, including new economy companies, and as forums to transact, manage risk and invest for the future.

Specifically, our listing reforms of 2018 included a new chapter dedicated to biotech companies, making it possible for them to list in Hong Kong pre-revenue, and thus raise growth capital as part of a visible, well-regulated company on a public market, supporting R&D.

Reforms have changed the DNA of our markets and powered game-changing ideas

These reforms have changed the DNA of our capital markets, leading to a rapid rise of new economy listings since the onset of the pandemic.

New economy companies are not confined to one particular industry or market. The term broadly describes companies that achieve rapid growth through entrepreneurship, technological progress and new business models, and which have expanding scopes and offerings given their emphasis on innovation.

They are the companies of tomorrow, typically embodying sectors like biotechnology, internet services, fintech, electric vehicles, new media and entertainment, green tech and clean tech.

Total capital raised by new economy listings reached HKD290 million in 2021 at HKEX, nearly doubling the amount raised in 2019. Meanwhile, 87% of total capital raised in 2021 came from new economy companies.

These companies are increasingly coming to Hong Kong, seeking international exposure in a well-regulated trusted market whilst also gaining access to China’s huge investor base and tapping into Hong Kong’s deep, vibrant and liquid markets as they fund their next wave of growth.

The marketplace of the future

We have a vision to build the marketplace of the future where we will continue to play an important role in connecting capital with the game-changing ideas and opportunities driving the post-pandemic recovery and shaping the lives of generations to come.

To do that, we ourselves know that we need to embrace the innovative spirit embedded in the companies of tomorrow and constantly look for ways to enhance the attractiveness of our capital markets.

Building on our listing reforms of 2018, we have recently launched a new listing regime dedicated to special-purpose acquisition companies (SPACs) and streamlined our process for overseas companies to list in Hong Kong.

Supporting the companies of tomorrow is more than just supporting them as they seek a market listing, it is also about empowering issuers through their corporate lifecycle from private to public, from start-up to scale-up, and from listed company to secondary issuances. Hong Kong has a rich ecosystem of products and professionals for this, underpinning its position as a premier capital raising centre of choice.

Our purpose to connect, promote and progress our markets and the communities they support for the prosperity of all is clear. As the world changes around us, capital markets themselves are embracing change, helping shape the aspirations and dreams of every entrepreneur, every family business, and every bright idea.

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