Laura Cha, chairman of HKEX, says her company have had “early engagement” with the London Stock Exchange about the proposal.
However, there’s no official response from the LSE yet – suggesting that engagement might not have been very friendly.
“We believe a combination of HKEX and LSEG represents a highly compelling strategic opportunity to create a global market infrastructure group, bringing together the largest and most significant financial centres in Asia and Europe. Following early engagement with LSEG, we look forward to working in detail with the LSEG Board to demonstrate that this transaction is in the best interests of all stakeholders, investors and both businesses.”
Shares in the London Stock Exchange have surged to a new alltime high.
Shares jumped 16% to £78.94, after Hong Kong Exchanges and Clearing surprised the City with its move on the LSE.
That values the LSE at around £27.6bn.
That’s someway below today’s proposal, which is a 22% premium to last night’s closing share price.
HKEX is offering £29.6bn, but the proposal is actually worth £31.6bn once you include the debt it would take on (the ‘enterprise value’).
This suggests the City isn’t convinced this deal will go through…..
NEWSFLASH: Hong Kong’s stock exchange has launched an audacious attempt to merge with the London Stock Exchange.
Hong Kong Exchanges and Clearing Limited is proposing to pay £29.6bn in cash and shares for the LSE.
It says that the merger would strengthen both businesses, and help them to offer new trading services across the globe.
It could help London pitch services to Chinese customer, and also “reinforce” Hong Kong’s position as the gateway to mainland China (which has been threatened by recent protest, of course).
As HKEX puts it, it will:
Create a world-leading market infrastructure group with a global footprint, diversified across asset class, ideally positioned to benefit from the evolving global macroeconomic landscape, connecting the established financial markets in the West with the emerging financial markets in the East, particularly in China.
The offer comes just five weeks after the LSE announced its own deal – a surprise merger with data group Refinitiv (part of Thomson Reuters).
HKEX is now trying to crash the party — saying its proposal (which isn’t a full-blown takeover bid yet), is dependent on the Refinitiv deal collapsing or being rejected.
More to follow….
China has taken steps to de-escalate the trade war with America, by removing tariffs from 16 types of US goods.
Beijing’s State Council announced that the items, including some chemicals, anti-cancer drugs and lubricant oils, will be exempt from its latest tariffs for a year.
However, some major US products such as soybeans were not included on the list, meaning Chinese importers must still pay a tariff.
This move has cheered investors, who have driven European shares to six-week highs today.
Neil Wilson of Markets.com says China’s move has raised hopes of a breakthrough when officials meet in Washington next month.
At the very least it suggests a willingness to engage seriously in these talks. Nevertheless I think we remain a long way and even a presidential election away from a deal.
On this note, economics professor Barry Eichengreen argues that America’s central bankers must warn that the trade war is hurting the US economy:
The “relentless sell-off in global bond markets” shows little sign of abating just yet, warns Jim Reid of Deutsche Bank.
He points to a headline yesterday, suggesting that the European Central Bank might delay launching a new quantitative easing (bond-buying) package.
However, he adds:
The headlines got the market excited but a closer read suggested that the base case from the main source in the article was that QE was still likely to be announced.
Investors are going to be on edge until tomorrow lunchtime, when the ECB announces its decisions.
Germany’s 30-year bond yield has burst back into positive territory!
The 30-year bund is swapping hands at 0.033% this morning, having fallen below zero last month. That means Berlin can still borrow very cheaply, but will have to pay some interest to its lenders.
And as with the rise in UK bond yields, it follows signs that government borrowing could be rising.
Government sources have revealed plans for a possible ‘shadow budget’, which would allow new debt to be issued by public agencies. This would circumvent the rules which ban Germany’s government from running a deficit.
The big worry is that the rise in bond yields will leave some investors with unpleasant losses.
At the end of August, the amount of debt trading at negative yields surged to $17 trillion, an all-time record. But in recent days, this has dropped back to $15 trillion.
Because yields move inversely to prices, this means anyone who bought bonds at their recent peaks is now facing capital losses. If they bought at negative yields, they won’t get any coupon (interest) payments either!
Britain’s sovereign debt is also under pressure this morning, sending yields up to six-week highs.
The yield on UK 10-year gilts jumped to 0.666% this morning, up from a low of just 0.339% a week ago. That means it would cost the UK government more to borrow for a decade – although it’s still cheap in historic terms.
UK bond yields have been creeping up since chancellor Sajid Javid announced the biggest new spending plans in 15 years.
Bond traders may have concluded that Britain will breach its deficit targets, and borrow more money to balance the books.
Here’s Mohamed El-Erian of Allianz on the latest bond moves:
Marketwatch’s Sunny Oh reckons bond traders are worried that Mario Draghi might disappoint them tomorrow, at his final meeting as ECB president.
Investors are looking ahead to the European Central bank rate decision on Thursday, where it is expected to announce stimulus measures. Push back by some ECB policy makers on the case for further easing, however, has dampened hopes that the central bank will an ambitious stimulus package.
ECB President Mario Draghi has insisted it still has policy tools available amid questions that the central bank has run out of ammunition, but analysts say it’s not clear if monetary policy can boost economic growth in a world where debt yields are already negative.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
For months there’s been a simple mantra in the bond market: What goes up keeps on going up. Nervous investors have driven sovereign bond prices to a series of record highs, as they have looked for a safe place for their money.
This move has pushed bond yields (the rate of return on the debt) to record lows.
As a result, many European governments have bee able to borrow at negative interest rates, with investors even willing to pay Berlin for the privilege of buying Germany’s 30-year debt.
But nothing last for ever.
And this week, bond prices have started to turn south, pushing bond yields higher.
Overnight, the yields on America’s two-year and 10-year bonds have hit one-month highs, bouncing back from their lowest levels since 2016.
That move means prices are falling, suggesting weaker demand. The move came after a US Treasury auction of three-year bonds proved disappointing.
So what’s going on?
The optimistic view is that investors are growing less nervous, and are churning their money out of bonds into other assets, which might give a better rate of return.
With a no-deal Brexit on 31 October looking unlikely, and fresh US-China trade talks imminent, the global economy could perk up. That would make low-yielding bonds look less attractive.
Hopes of diminishing U.S.-China tensions and reduced risk of no-deal Brexit have prompted investors to take profit in risk-off trade ahead of key central bank policy meetings.
The pessimistic view is that investors have simply got carried away in recent months and driven bond prices ridiculously high.
Many had been counting on central bankers to launch big new stimulus packages to spur growth. But those hopes may prove misplaced — if European Central Bank (which meets tomorrow) and the US Federal Reserve disappoint investors.
As Ipek Ozkardeskaya, senior market analyst at London Capital Group, explains:
The downside correction in global sovereign markets continue in the final run-up to the ECB and Federal Reserve meetings this week and the next respectively.
Investors are trimming long speculative positions in sovereign bonds, as dovish expectations have certainly gone well ahead of what central banks would deliver at his month’s meetings. As such, the US 10-year yield recovered past the 1.70% mark, and the 10-year bund retreated past -0.55%.
Also coming up today
Troubled retailer Sports Direct is holding its Annual General Meeting. It’s a chance for shareholders to ask pertinent questions such as “What’s gone wrong with the House of Fraser takeover, Mike?”.
Boss Mike Ashley has, alas, banned journalists from attending — but he’s been known to revoke this red card at the last minute, so the hacks might yet squeeze in.
Fashion chain SuperDry is also holding its AGM – the first since founder Julian Dunkerton won his battle to rejoin the board in April (the rest of the board responded by resigning en masse...)
The economic diary is quiet, beyond new US oil inventory data.
- 10.30am BST: Superdry AGM
- 11am BST: Sports Direct AGM
- 3.30pm BST: US weekly oil inventories