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Under the Banyan Tree - Equity league tables with a side of history
1 Plays3 seconds ago
Herald and his fellow Equity Strategist Perna Garg discuss the rise of Asian stock markets over the past 20+ years, and in one or two cases, a lot longer.
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Transcript
Introduction to Asian Markets and Economics
00:00:09
Speaker
Welcome to Under the Banyan Tree, where we put Asian markets and economics in context. I'm your host, Harold van der Linde, in the Hong Kong studio here at HSBC Global Investment Research.
00:00:20
Speaker
Now, we've been looking at markets for a while, and it's safe to say the lay of the land has changed a lot in the past couple of decades, especially when it comes to Asia. How have the so-called league tables adjusted over time and what has caused these shifts?
00:00:35
Speaker
I'll be discussing that with my colleague Prenna Gag on this week's podcast and chucking in a few history lessons along the way too. Plenty to get through, so let's get the conversation started.
00:00:50
Speaker
Well, Pruna, welcome to the podcast. Thank you, Harold.
Overview of Global Stock Markets
00:00:54
Speaker
Well, um we have a sheet here in front of us that, of course, you listeners cannot see. But Pruna has prepared this for this particular podcast. And she's basically listed for us the largest stock markets in the world, the top 15. By market cap. By market cap. That means that the total size of the markets, all the companies put together. Now, and she's actually done this all the way back to 2004. So tell me, what what are the biggest markets here? So, Harold, I think of what is not a surprise is that U.S. is the biggest equity market in the world. We're talking about around 78 trillion U.S. dollar of stocks. Listed on that exchange. And to put this in context, if I just look at the numbers here, the U.S. market is bigger than ah all the other top 10 markets or the say the the the nine thereafter in the top 10 together, combined. I think much bigger than even the total market cap. But what is surprising and what caught my attention was after U.S., the next six biggest equity markets in the world are based out of Asia. So we're talking about mainland China. That's almost 16 trillion U.S. dollar in size. Then we have Japan, Hong Kong, Taiwan, South Korea, India. ah And then we have got Canada. That's the first non-Asian market that then shows up. So that's basically, aside from the U.S., Asian stock markets dominate the the universe.
00:02:14
Speaker
And what is more interesting, Harold, is that when we compare this list with the list back in 2004, US was still big there, massive. But mainland China and India did not even make the first 15 spots. No, I'm just looking at a list here. But the first one to show up is Hong Kong. That's probably number one, two, three, four, five, six here. And mainland China is not even on the list. South Korea just makes it at the very bottom of our top 15. So in 2004, we had um the US, Japan, basically, UK, France, Germany, those were the biggest stock markets. And now it's US, mainland China, Japan, Hong Kong, Taiwan, India and South Korea. That really don't win. So Asian markets have come a long way. Exactly. Just a quick question. So on the list here for 2026, see mainland China. what What's...
00:03:03
Speaker
What stock
China's Stock Market Evolution
00:03:04
Speaker
markets are these? So here, Harold, when we talk about mainland China, we're really looking at the A-share companies, the mainland Chinese companies listed on Shanghai Stock Exchange, Shenzhen Stock Exchange. There's also a small exchange in Beijing. But as you know, Chinese companies are listed across various exchanges in the world. As I said, know, Shanghai and Shenzhen and the companies listed there are called A-share companies. But there are quite a few big companies also listed in Hong Kong. Think about Alibaba, think about Tencent. These are actually the biggest companies listed in Hong Kong that actually originate from Mail and China. Yeah, they would go into the Hong Kong list in this case because that's the size of the Hong market. But Harold, most of these companies got listed in last 10, 15 years. So I assume the structure of Hong Kong exchange back in 2004 must have been very different. I have no idea. How did a stock exchange, Hong Kong stock exchange, look back in 2004? And you as a very young lady, of course, that's ancient history for you. It's probably good way to actually start with the Chinese stock market literally in 1889, I think it is. Wow, we're talking about history now. Let's start at the very beginning. So stock markets was a thing invented Europe by the Dutch, by the way, but that's a different story altogether. In India, they opened one up in 1886, I'm not mistaken, under a banyan tree. The Lal Street. Dala Street, that's still called Broker Street in Mumbai. And then the Japanese started with it as well. And the Chinese set up a stock market as well in Shanghai and Hong Kong.
00:04:32
Speaker
um In those days, had rubber plantations and railroad companies listed and stuff like that. But then in 1949, they closed it. And China did not have a stock exchange until they reopened it in 1990.
00:04:46
Speaker
So back then, like, the Chinese companies would not get listed or would they come to Hong Kong? No, you could not list in mainland China. But if you wanted to get listed, you had to go to Hong Kong because the Hong Kong market was still open. Now, what then actually happened is that some state-owned companies and some private companies, well, I think, I believe the first one was Tsingdao, the beer company. They listed in Hong Kong and then you had companies like PetroChina listing Hong Kong and a couple of other state-owned enterprises as well.
00:05:14
Speaker
If I'm not wrong, these companies also got their ADRs listed in the US. I think the idea was to get more foreign investments into mainland China. So that was a sort of ah the early stages of opening up in China. And of course, it was easier to list in in the US s and obtain capital there. and Hong Kong as well. But yet, that's why they went for these ADRs as well. But even Alibaba, like, know, the internet giant Alibaba had its first listing in US, I believe, in 2015, 16. You're going very fast now. Hold on for a second. Because in 1990, I'd like just to add this into it. I was a backpacker in China and I was in Shenzhen and the Shenzhen Stock Exchange had just opened up in 1990 and Shanghai as well. And I remember they had a problem with the dividend payouts, the very first dividend payout payments. And I don't know how they did this, but in these these days, and and I don't know if it was for Shanghai, but I remember in Jakarta was still the day. These were open shout markets. People would stand in the square and shout, hey, I won five shares. I've seen that in movies. Exactly. But that was still the case. It wasn't electronic yet. And people write things on pieces of paper.
00:06:14
Speaker
So, yeah, if your admin wasn't up to kind of the standards, you run into all sorts of problems. And I remember there were people protesting in Shenzhen in front of the stock exchange there because that went wrong. The year thereafter, they sorted these things out. But that was just when these markets were opened up in 1990. And yet a few companies listing ah in in shenz in Shenzhen and Shanghai as well.
00:06:36
Speaker
Then you had the opening up of China, the WTO, the World Trade Organization in 2001. The Chinese government then actually sold a lot of their shares on the stock market. So from 2001 to 2005, the Chinese stock market actually went down. It didn't go anywhere. So it wouldn't have ended up in the league tables yet.
00:06:55
Speaker
But then what happened in 2006, they started to list the larger banks. Those were really big. And that was a hype. Here in Hong Kong, people were on the street trying to get their hands on the initial public offering of these companies. I've seen them. And then get the insurance companies and yet the consumer companies and China mobile listing and these sort of companies. And this makes sense because, like, you know, as we discussed, mainland China is not even in top 15 until 2004. But suddenly in 2009, mainland China is the fifth biggest equity market. You're right. Maryland China is the one, two, three, four. Yeah, the fifth largest stock market suddenly.
00:07:28
Speaker
Poof, it suddenly comes up. And then you had some of these internet giants like Alibaba, for example. They listed initially in the US, I believe at the time, 2014. It was the biggest IPO the world had ever seen. Oh, oh.
00:07:41
Speaker
And then eventually they came into their listing here in Hong Kong. And this was ah this was a big wave in 2020, 2021, when all these companies, including Alibaba and a lot of Internet giants, they actually moved from meaning of from U.S. to Hong Kong. So the the the rise of China can be explained by that kind of coming back homecoming, but also simply the size of these companies and the economy that grew. So that that's right. Japan has always been a large stock market.
00:08:10
Speaker
And let's talk about Korea and Taiwan recently overtook India. But is it all about AI or you think there's more going on in Korea and Taiwan? Well, I think ai accounts for a lot of that because these markets, Korea had an enormous performance over the last year, right? So that's why they've gone up the league table. So AI accounts for a lot of that. But to be honest, in Korea, you also have...
00:08:31
Speaker
all sorts of other industries. I mean, shipbuilding, equipment makers, energy companies, consumer companies, cosmetic companies, they're becoming more. there's more going on. It's not just an AI story.
Netherlands and India's Stock Market Insights
00:08:44
Speaker
ah But but and maybe I can quickly highlight ah somewhat patriotically that the one country that seems to be always hovering around the 14 or 15 on your list there is my home country, the Netherlands. um It was the biggest stock exchange in 1602. That's a long time ago. But it's now number 1415. And that's because they got Royal Dutch Shell and ASML. So there's a little bit of AI in there as well. And India is coming down the race. I think that was like, you know, since we're showing patriotism here, let's spend a few minutes also on India. So, like, you know, India jumped the ranks massively between 2000 2000.
00:09:21
Speaker
19 and 2023, as I say. And that's because like, you know, probably India was the hottest equity market. Yeah, and it was probably the best performing market in that period. But since then, like, you know, it is gradually finding its way down. And that's because like, you know, the other stories, the other markets have got a bit of more traction.
00:09:37
Speaker
Yeah, that's right. And what we now need to see in some of the other markets in order for them to grow is to basically have more IPOs and broaden these markets so that, yeah, we get more more markets. And India has seen a lot of IPOs, but yeah, they need to more companies to come and list there as well. but What I would say is… Indian exchange has one starking difference from which I don't find anywhere else in the world. yeah We have two stock exchanges, the Bombay Stock Exchange and NSE, the National Stock Exchange. Explain that to me because that's always very confusing. How does that work? So like, you know, even say, mainland China has two exchanges, Shanghai Stock Exchange and Shenzhen, as we just spoke about. And companies can choose whether they want to get listed. Shanghai or Shenzhen. Normally tech and high growth companies come to Shenzhen. Traditional big companies are listed in ah on Shanghai. Yeah. But in India, companies tend to get listed on both the exchanges. Yes. Like, you know, one company, say, Reliance Industries is listed on NSE. It's listed on BSE. And the NSE is where? The BSE is in Mumbai. Both are in Mumbai. Okay. Both broadly have the same companies listed. You can buy the share of a stock on one exchange and sell on the other exchange. So, like, know, it's quite... So it's actually one exchanges, but it's two. It's two. And it seems to be an on and unnecessary complexity debt, but it doesn't matter if you're a trade or an investor. I would call it a unique characteristic, but this is something we don't find anywhere else in the world.
Podcast Wrap-up and Future Directions
00:11:04
Speaker
A quick message from us here under the Benya tree. If you're one of our listeners on YouTube, we will soon be moving. To make sure you never miss an episode, be sure to head to HSBC CIB on YouTube and hit the subscribe button.
00:11:19
Speaker
Now, back to today's episode. know Since we're talking so much about stock exchanges, yeah have you been to any of the stock exchanges? Like I have seen Hong Kong Stock Exchange, of course, we pass by it all the time. yeah I think New York Stock Exchange, we all have been to Wall Street, like whoever visits New York. I've never inside it. I've been outside where they have this big famous bull standing, right? Bull, of course. I've been outside the Indian Stock Exchange, although I'm now confused which ones it really was, but it doesn't matter.
00:11:48
Speaker
But in on Dalal Street in in Mumbai, you've been there probably as well? um I've just seen it from outside. yeah Never been to any exchange inside. And i've I've seen on the outside the still open shout market in ah Jakarta. So where people, as I mentioned earlier, are still shouting in and a piece of paper. That was the way it was in the early 90s.
00:12:07
Speaker
um But I've never really been inside a stock exchange Probably that could be one of our to-do list in coming days. Let's go and visit a stock exchange. we'll go inside. I wonder how some stock exchanges actually look on the inside. Now I'm curious. We will find out.
00:12:21
Speaker
That's going to be a topic maybe for another podcast.
00:12:26
Speaker
And on that note, it's goodbye from us. Under the Banyan Tree is an HSBC Global Investment Research production produced by Draeum MacLean. We're available wherever you get your podcast. And while you're there, listen, like, and subscribe to The Macro Brief, which is our sister podcast, bringing you analysis of the global stories moving markets every week.
00:12:46
Speaker
Thanks for joining us under the menu tree. Talk to you soon.