IN THE FAST-CHANGING WORLD of securities exchanges,
Hong Kong Exchanges and Clearing sits in an enviable position.
The Hong Kong Stock Exchange, which it operates, is the
worlds fifth largest by the market capitalization of its
listed companies, $2.83 trillion, and one of the most
profitable. Over the past five years, it has had a greater
volume of initial public offerings, $141.7 billion, than
any other exchange in the world thanks to its status as the
premier gateway to corporate China. At home it enjoys a
statutory monopoly that protects it from upstart electronic
exchanges, which have bedeviled established bourses elsewhere.
Not surprisingly, investors have rewarded HKEx with a market
cap of $21.5 billion, making it the most valuable exchange
in the world, ahead of No. 2 Chicago-based CME Group.
Yet for all of the companys strengths, CEO Charles Li
Xiaojia knows he cant afford to be complacent.
HKEx has a much narrower business than most of its global
rivals, relying mainly on equity trading for its revenue and
profits. The lucrative IPO business is vulnerable to erosion if
the powers that be in China decide to promote their domestic
exchanges in Shanghai and Shenzhen. Li needs to make the
company bigger and broader if he wants to assure its continued
The former investment banker is moving quickly to do just
that. Last June, HKEx outbid half a dozen rivals, including
CME, IntercontinentalExchange and NYSE Euronext, to
acquire the London Metal Exchange for £1.4 billion
($2.2 billion). The deal gives HKEx control of the
worlds largest metals-trading venue and will, Li
believes, enhance the LMEs position in China, the
worlds biggest consumer of metals. He intends to use the
LMEs platform to expand into other commodity sectors,
such as energy.
In addition, Li and his team are creating a slew of
investment products based on the renminbi, ranging from futures
contracts in the Chinese currency to renminbi-denominated
stocks and derivatives. This initiative is still in its early
stages, but the potential for growth is enormous as China
gradually liberalizes its currency and allows freer movement of
capital in and out of the country.
We are building HKEx into an integrated,
multiple-asset-class exchange, Li, 51, tells
Institutional Investor. Our mission and aim is to be the
global exchange of choice for China-based clients and
international clients seeking China exposure. The key thing is,
we need to be in every single important place. We will leverage
London Metal Exchange as a catalyst to help facilitate an
accelerated opening of Chinas capital account.