OPINION-The Case for a Macau stock exchange: An opportunity in challenging times

By Paulo Câmara and José Leitão

Since the return of Macau to the sovereignty of the People’s Republic of China, much of the region’s economic growth  has come from the gaming expansion. Macau is one of the world’s largest gaming centres (more than 80 per cent of local revenuesare earned by the operation of casinos or related businesses) and its gaming industry boom has directly increased the demand for local service sectors, such as real estate, hotels and restaurants, and wholesale and retail, all of which are closely linked to the gaming sector. Consequently, other sectors have experienced sharp declines. This means a shift in Macau’s economic structure toward a gaming industry-dominated economy, which makes it vulnerable to external changes. Due to COVID-19 pandemic outbreak, the economy shrank over 50 percent with gaming revenue plunged by 79.7 per cent year-on-year. This drop has been largely attributed to border restrictions and business shutdowns amid the public health crisis.

Paulo Câmara, Managing Partner, Sérvulo & Associados
José Leitão, Partner, MdME Lawyers

The pandemic has exposed the importance of economy’s diversification and the priority of the development of a financial services structure capable of increasing capital flows between China and Europe. To promote development in modern financial services, Macau benefits from its strategic location, as well as “one country, two systems” policy, in addition to being a port zone without customs duties due to its free port status and boasts an advantageous tax system. Macau’s location is a prominent platform to play an active part in Guangdong-Hong Kong-Macau Greater Bay Area.

This cooperation zone would have facilities in promoting innovation services and technology, creating a customs-clearance model and removing institutional barriers, as well as promoting a freer and more orderly flow of relevant resources. Moreover, its legal and financial system, cultural features and language retain many similarities with world’s Portuguese-speaking countries and the creation of a new stock exchange market at this juncture would also allow Macau to gather the best of the operational and cultural experiences of the more sophisticated Chinese financial markets such as Beijing and Shanghai. Therefore, Macau has the potential to serve as an effective bridge of economic and trade relations between China and the Lusophone world, creating an investment environment that would provide comfort for stakeholders from both regions.

Creating an entrepreneurial, innovative and internationalized environment with more openness to investment and financing is the path to further diversification of Macau’s economy. The key of a modern financial industry’s development and construction of cross-border business cooperation services platform is market interaction and technical progress. Technology advance, financial innovation and market liberalization enable capital markets to grow, thrive on and feed the exchange of ideas, while allowing access to capital from more diversified sources, thereby contributing to a more diverse economic offering.

The financial industry contributes to efficient allocation of capital and risk in an economy and it is a fundamental infrastructure that permits other economic activities to function and develop. The financial industry needs financial market rules and regulations and a stock exchange system to structure, govern and permit the issue and trading of financial instruments. 

To achieve a diversified economy, the local ability to list and trade securities is at the heart of any financial system. Stakeholders at a local, regional and even international level have a clear and increasingly pressing interest in the creation of a venue where to raise capital and allow them to trade their securities in an environment that provides legal and regulatory certainty to investors steeped in either the continental or the Chinese experience. Building a sophisticated and cross-border oriented stock exchange market that congregates these legacies is fundamental to strengthening Macau’s financial system and consequently reinforcing its position as a platform between China and the Portuguese-speaking countries.

The evolution of Macau’s economy clearly benefits from capturing the interaction between markets and technological progress. A financial system based upon a robust securities markets provides for a trade platform between China and Portuguese-speaking countries and intensifies the cooperation zone within Guangdong-Hong Kong-Macau Greater Bay Area. Macau would strive to lower the threshold for Macau banks, insurance providers and other financial institutions established in Hengqin, to realise free flow of capital.

The creation of a local stock exchange is an almost necessary condition for the development of a large and efficient financial infrastructure and the fostering of economic diversification, and the approval of a Stock Exchange law and the corresponding ancillary regulatory framework would establish market confidence, foster the protection and outreach of investors and definitively boost the growth and diversification of Macau’s economy.