As Hong Kong Exchanges & Clearing looks at extending its services as a bridge to mainland China, HKEx CEO Charles Li said that it’s now embarking on a new three-year plan to bring China’s market to the rest of the world.
Last year, HKEx posted record earnings in 2015 and has a current market cap of about US$28 billion, posted the first full fiscal year with the London Metal Exchange under its umbrella and launched the Hong Kong-Shanghai Stock Connect, which links the two equity and potentially, derivatives markets. The exchange ranked 17th among global derivatives markets, with annual volumes up 12.4 percent to 359 million contracts in 2015, according to the FIA Annual Volume Survey.
But the exchange also faced massive headwinds with the stock market, which plunged sharply in July 21015 and slid over the rest of the year. Indeed, the Chinese equity market started 2016 with more bearish drops, roiling global markets, before correcting slowly in the first quarter.
HKEx’s 3-year strategy includes plans to will continue to work its relationships with mainland Chinese markets, as well as build the LME market within that China context.
“We’ve fundamentally changed the business going forward by essentially looking at what additional connectivities we can do with China that allow us to get onto another plateau,” Li told JLN at the FIA Boca Conference in March.
In terms of the LME, Li said that exchange has enormous potential. LME has traditionally been dominated by the physical market participants but Li sees a more diverse group of participants. China, for its part, is a market that still has a large number of speculators.
“We’re hoping to bring a little bit of that (Chinese speculators), and financializing the LME is a key component,” he said.
Going forward, Li said the mission for his exchange is to be the market for Chinese participants and the market for international customers.
“If you want to break into that last frontier, you run into new challenges because it requires us to have a tremendous expertise in understanding how China works,” Li said, adding that these relationships must be set up so that they “do not create problems for them, but solve problems for them.”
Part of the challenge for HKEx is imparting its international exchange experience.
“In order for them to be truly international, there are certain changes and things they need.”
Li will continue to build those bridges.