STAT Newsmaker: Hong Kong Stock Exchange's Christina Bao

This is part of an occasional series of brief Q&As with biotech newsmakers in China. This week we discuss Hong Kong's biotech sector with Christina Bao, managing director, deputy head of market development, and head of global issuer services at the Hong Kong Stock Exchange (HKEX). This transcript has been edited for length and clarity.

It has been two years since HKEX began allowing pre-revenue biotech companies to go public. What has the exchange learned about hosting biotech IPOs?

Our market has grown significantly since the new listing regime took effect. HKEX has welcomed 30 health care and biotech listings on the Main Board in Hong Kong, raising $11 billion as of May 31. These include 18 pre-revenue biotech companies raising a total of $5 billion.

We launched the new biotech chapter in response to an evolving market landscape, with growing demand for health care services to meet the needs of China's 400 million-strong middle class. The biotech chapter helps connect the capital market with the biotech industry, so that emerging biotech firms have sustainable and reliable access to capital.

With access to both international and mainland investors, Hong Kong is uniquely positioned with a deeply liquid market, the rule of law, as well as regional and international investors supporting ambitious companies with growth aspirations. We are just at the beginning of the biotech sector's development in Hong Kong.

The first batch of companies to list under the new biotech rules had high valuations but a rocky start in trading. Looking back, why do you think that is, and where do you think we are now?

Biotech is an entirely new sector to Hong Kong, and it takes time for the market to become familiar with this specialized sector. Two years on, the investment and financial communities have deepened their understanding of the sector's unique dynamics and characteristics, while the Hong Kong biotech and health care market has grown significantly and continues to expand.

The listed biotech sector in Hong Kong has shown tremendous resilience and contributed significantly to the success of our listing franchise, with around 12% of total IPO funds raised in 2019 having come from listings of biotech and health care sectors. This year, despite the impact of Covid-19, we have welcomed four biotech listings under the new chapter, raising a total of $1.2 billion.

Hong Kong is still at the early stage of incubating a new sector. Going forward, HKEX will look to enhance its listing regime as the dynamic biotech and life sciences industry further develops. We will work closely with our stakeholders to make the biotech ecosystem even more attractive and competitive.

In what areas do you think Hong Kong's biotech ecosystem can continue to mature?

We expect to see more issuer diversity in terms of both biotech subsector and geographic region and expect the entire ecosystem to accelerate its development.

We have also noticed a deeper level of research coverage on biotech in Hong Kong, and we believe that a professional pool of talent in biotech research will continue to grow. HKEX is committed to supporting analysts' coverage of the health care and biotech space.

In addition, we see increased demand in the capital market for benchmarks that track and reflect the developments of the biotechnology sector. HKEX will look to expand its product offerings in this space to meet the needs of investors.

With Hong Kong's current economic challenges and geopolitical uncertainty, how do you see HKEX maintaining its status as one of the world's top IPO markets in the coming years?

The Hong Kong market has a unique edge as a connector between China and the world, and this role will only become more important going forward. In times of heightened activity or against the backdrop of macro geopolitical or economic challenges, our role becomes ever more important — ensuring connectivity between capital markets in China and the rest of the world and facilitating the successful flow and allocation of capital.

We have demonstrated that our markets are robust and resilient even in a difficult macro environment and the Covid-19 pandemic. We ranked number two among global exchanges in terms of number of IPOs so far this year, and have been the world's number one IPO market seven times in the last 11 years. Our trading volumes have also been very strong throughout the past few months. Among health care stocks in particular, average daily trading volumes have almost tripled from 2017 in the first five months of 2020.

Whatever the prevailing macro-economic conditions, HKEX's focus is on running stable, fully functioning, thriving capital markets and ensuring that our markets and operations to support our customers' needs.

We offer a unique combination of benefits for potential issuers — international standing, established and proven governance and operation, deep liquidity, and transparency, all backed by the rule of law and an experienced professional community.

As a "new economy" industry, how important do you think the biotech sector will become in Hong Kong's economy and financial market in the foreseeable future?

Biotech is a burgeoning industry in Asia and it has drawn increased attention in Hong Kong's financial market.

Health care has become one of the fastest growing sectors in Hong Kong's IPO market, with compound annual growth rate of 60% in terms of number of IPOs, while the total market capitalization of the health care sector enjoyed a compound annual growth rate of 34% from 2017 to 2019. There are currently 148 health care companies listed on Hong Kong's markets with a combined market capitalization of $264 billion, up 72% from April 2018.

The pandemic has not undermined fundraising interest among biotech companies, but rather strengthened their appeal. A total of 11 health care and biotech companies have submitted listing applications as of mid-June 2020, including two pre-revenue biotech companies.

We are confident about the prospects of health care as an industry in the region. The demographic shifts will continue in coming years, while ongoing regulatory reforms in countries like China will provide more investment opportunities to investors. HKEX is committed to play a leading role to support and accelerate the future growth of the biotech industry.