Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

It's all about skin in the game.

First Glencore Plc, and now Coach Inc. -- or rather Tapestry Inc. as the handbag maker has been renamed -- are heading to the Hong Kong stock exchange exit gates. They follow Vale SA, the Brazilian miner that withdrew its listing last year.

The three became frustrated with desultory trading volumes after going public in the city via secondary listings more than five years ago. The pending departures of Glencore, the world's biggest commodities trader, and Tapestry illustrate one overriding lesson: No company can expect to be traded well in a market where it doesn't raise money -- even if (as in Coach's case) it's a globally recognized brand name.

Shares of New York-based Tapestry were already traded in its home city when the company went public in Hong Kong in December 2011, just months after London-listed Glencore made its debut in the former British colony. Like Vale, they were destined to become "orphan stocks" with little trading and research following.

Secondary stocks don't command much attention from analysts for the simple reason that most investors wanting to buy a company's shares will choose to do so in the place of its primary listing: Brazil for Vale, New York for Coach, or London for Glencore. Now that cross-border trading can be conducted with the click of a cellphone, the case for an overseas presence is even slighter.

Flying Coach
Tapestry shares traded in Hong Kong barely register beside the stock's U.S. volume
Source: Bloomberg
Note: Tapestry Inc. is the new name of Coach Inc. Data show the value each day of all shares traded.

The meager gruel of secondary listings is even more evident when trading in Coach is set beside that of other overseas companies that chose Hong Kong for their primary listing, raising money and building up an investor base in the city.

Luxembourg-based cosmetics maker L'Occitane International SA, Italian fashion house Prada SpA and U.S. luggage maker Samsonite International SA all joined a wave of foreign firms piling into the city six to seven years ago, raising billions in the hopes of luring Chinese consumers. While trading has been volatile, it's been respectable: About a fifth of Samsonite's market value, for instance, changes hands daily. 

Italian Star
Prada raised $2.5 billion in 2010 in Hong Kong's biggest listing by a foreign company
Source: Bloomberg

By contrast, Tokyo's Fast Retailing Co., owner of the Uniqlo brand, and London-listed Kaz Minerals Plc are other companies that remain stuck in Hong Kong's secondary-trading reverie. They should probably start planning their departures. 

Ultimately, overseas listings will remain a sideshow for Hong Kong Exchanges & Clearing Ltd. The exchange's interest lies in keeping China's new economy stocks coming, and shifting the market's balance away from its predominance of bulky and unexciting state-owned companies. Millions of mainland Chinese investors now have access to Hong Kong stocks via the exchange's trading pipes with Shanghai and Shenzhen and are spurring trading gains.

Hong Kong has a key advantage here. Mainland investors buying into New York-listed Chinese companies such as Alibaba Group Holding Ltd. are restricted to doing so through fund managers using government-set quotas.  A "primary connect" that allows Hong Kong and mainland investors to buy initial public offerings in each others' markets would spark an even greater surge in trading.

Household names that resonate with Chinese investors may continue to find Hong Kong an attractive venue. For example, mainland buyers via the stock connect account for almost 5 percent of the shareholder base of HSBC Holdings Plc, the Hong Kong-founded bank that's now headquartered in London.

The rest needn't bother. The city's stock market may be five times the size of Singapore's, a regional rival that's also made a play for overseas companies, but it has little chance of matching New York or London as an international fundraising center. The future can be summed up in one word: China.

Peter Grauer, the chairman of Bloomberg LP, is a senior independent non-executive director at Glencore.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. QDII, or the qualified domestic institutional investor program, was launched in 2006 allowing Chinese individuals to buy securities in overseas markets through asset managers.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net