Capital markets, companies of tomorrow and a new era of innovation

Our world is changing at breathtaking speed. The march of technology and the constant innovation in fields such as artificial intelligence (AI) and robotics are changing the way we work and live. Many of these innovations are not demand-led, but they present extraordinary opportunities for the world to embrace a better, more sustainable future. And, as the world’s population grows beyond its 2022 marker of 8 billion, we need to harness the power and potential of those innovations to ensure that they are being deployed for the broader good of our societies and our planet.

As the world’s centre of gravity pivots east, from our vantage point in Hong Kong we are witnessing the birth of some of the world’s most exciting businesses. These are the companies of tomorrow – many established in the economic powerhouse that is China, but others from innovative hotspots across the ASEAN region – such as Indonesia, Malaysia and Thailand. A slew of companies and technologies is emerging with ideas and solutions that will fuel a new era of growth.

These pioneering businesses need support and capital to keep advancing and funding innovation is where capital markets and established market operators, such as Hong Kong Exchanges and Clearing (HKEX), come in.

ChatGPT has taken the world by storm. But we believe this is only the tip of the iceberg. AI technologies, such as machine and deep learning, have already become widespread, but the pace of innovation is unrelenting. The growing availability of large datasets, increasing demand for automation and an improving range of interfaces built on technologies, such as generative models, are likely to drive global AI revenue from $10 billion in 2018 to $119 billion by 2025, according to Tractica.

One area where AI is likely to play an increasingly important role is in healthcare, as companies develop AI-driven technology to improve diagnosis, personalise treatment and create new sources of growth.

An example of this in practice is the development of AI programmes to detect early signs of cancer in medical images, with a much lower error rate than human diagnosis. The potential for applying AI technologies across the medical and life sciences industry is huge. In the field of cancer alone, there were 18 million new cases diagnosed globally in 2020 and that number is expected to rise to 28 million by 2040 according to Cancer Research UK.

But it is not just biotech – the excitement about the application of AI technology across the full range of industries is significant. Over $142 billion of venture capital flowed into nearly 7,000 AI-related deals across the world in 2021 and 2022, according to GlobalData, indicating a burgeoning and dynamic place for these groundbreaking applications that will change our world.

Another area where innovation is disrupting at pace is in the field of energy generation technologies, which is changing the way we consume and produce energy – and helping to realise global decarbonisation goals.

According to the International Energy Agency, global renewable energy capacity will increase 75% between 2022 and 2027, propelled by ambitious expansion policies worldwide.

China alone is forecast to generate almost half of the new global renewable power capacity from 2022 to 2027: with the country’s stated renewable energy targets in its 14th Five-Year Plan, market reforms and strong provincial government backing provide long-term support for the development of this industry.

To meet the world’s demand for renewable energy generation, there has been an exponential rise in innovations and patent filings in areas such as battery development and recycling, energy storage, electric vehicles and solar energy. These businesses need funding and between 2021 and 2022, HKEX welcomed four EV companies to its markets, raising nearly HK$36 billion.

China is evolving from an established global manufacturing powerhouse for solar technology to a hotbed of activity across the whole new energy ecosystem, with innovative startups attracting around $2 billion of venture capital investment in 2021 and 2022, according to Oliver Wyman.

As China strengthens its position as a global energy innovator, it will, in turn, help drive the world’s transition to a low-carbon economy – presenting plentiful opportunities for global collaboration and investors alike.

Faced with growing urbanisation, an ageing population and falling crop yields largely as a result of climate change, the world is facing major food security issues. The disruption to global food supplies, as a result of the sustained attack on Ukraine, has further exacerbated supply chain fragility, forcing policymakers to increasingly turn to technology to help improve farm productivity and bolster self-reliance capabilities.

Lab-based meat production and agriculture are already widespread in Europe, but China also has ambitious plans for sustainable food innovation and production. Beijing included alternative proteins in its five-year agricultural development plan, showcasing its desire to nurture this industry.

An exciting area of innovation in this field is vertical farming – the method of growing crops in stacked layers in a controlled environment, such as a warehouse. Grand View Research predicts the size of the global vertical farming market will reach $24 billion by 2030, growing at a CAGR of 20.1% from 2022 to 2030.

Vertical farming is more land-efficient than traditional farming and it can be situated closer to customers and regenerate unused urban real estate. Such advances in new food technologies will not only bolster national food security in China and other innovative jurisdictions, but it will also ensure sustainable food supplies and open up new opportunities for investment and jobs.

The challenge with any new technology is that it requires substantial R&D investment to bring it to life. And, while many venture capitalists have already invested in innovative technologies and companies around the world, capital markets also have a big role to play in scaling and funding innovation.

By providing access to a rich pool of investors and a diverse ecosystem of dealmakers, capital markets can act as a conduit between growth capital and companies with promising prospects and innovations.

At HKEX, since listing reforms introduced in 2018 – which included allowing pre-revenue biotech companies to list on HKEX – nearly HK$1 trillion has been raised by new economy companies in Hong Kong. And today, one-third of our market capitalisation comes from tech companies.

We are passionate about continuing to power the companies of tomorrow and we recently complemented the 2018 reforms with the launch of a new 18C Specialist Technology Listing route to market in March 2023. This route enables issuers from five specific industries – next-generation information technology, advanced hardware, advanced materials, new energy and environmental protection and new food and agriculture technologies – to seek a listing on Hong Kong’s markets.

We are already seeing great interest in this from companies across Greater China – some of which are attending this year’s Annual Meeting of New Champions in Tianjin, China.

As these companies of tomorrow continue to emerge – trusted, liquid and connected capital markets, such as those in Hong Kong, will play an increasingly critical role in fuelling growth, dreams and ambitions; and they will play an ever more critical role in contributing to a more sustainable world for us all.