(Yicai) Sept. 22 -- Hong Kong's Growth Enterprise Market, a listing venue for small and mid-sized companies, looks set for overhaul after trading faltered and initial public offerings dried up in recent years, with the stock index that tracks the performance of firms listed on the board hitting a new low yesterday.

The S&P/HKEX GEM Index fell 0.4 percent to close at 24.68 today, after sliding by as much as 1.5 percent in the afternoon. It ended at 24.59 yesterday, the lowest close ever, having dropped by almost a third this year. The index reached an all-time high of 1,823.74 in 2007.

The GEM, operated by Hong Kong Exchanges and Clearing, was touted as ‘Asia’s Nasdaq’ when it was launched in 1999 to provide a platform for smaller and growing companies to raise capital and go public. That has not gone to plan and reforms are in the works.

A public consultation paper on reforming Hong Kong’s second board is expected to be released in the second half of this year, Julia Leung Fung-yee, chief executive of the Special Administrative Region’s Securities and Futures Commission, has said.

In her view, solving investor needs and liquidity issues is a top priority. Market participants, both buy-side and sell-side, have an important role to play in bringing together a pool of high-quality issuers, which in turn will reignite investor demand for small-cap stocks, according to Leung.

The need for overhaul is urgent. Of the 334 GEM stocks, 314 closed at less than HKD1 (13 US cents) on Sept. 20. Vision International Holdings had the highest share price at HKD6.85, according to data provider Choice. Grand Power Logistics Group was the last business to go public on the GEM in January 2021.

A veteran investor in Hong Kong stocks said the GEM’s major problem is with the issuance of  small-cap stocks, of which there were many listings previously, as investment demand has now stagnated.

From 2015 to 2018, the GEM got 180 new stocks, raising the total to 308 as of Dec. 31, 2018, per Choice data. Despite the rising number of market entrants, performance has been poor. Only 98 firms listed on the GEM, or less than a third of all, logged a profit last year.

The GEM is a typical offshore market and must attract more international investors to further hike transaction volumes and liquidity, said Zhao Ran, chief analyst of non-banking finance and fintech at China Securities.

The Hong Kong Stock Exchange could expand its stock connect regimes with China's mainland markets to bring more yuan-denominated funds to the SAR and make efforts to attract investors from more countries and regions such as the Middle East, he added.

Editor: Emmi Laine