Hong Kong Exchanges and Clearing (HKEX), owner of the London Metal Exchange, filed its 2018 earnings this week, reporting record LME volumes amid a 26% climb in profit after tax, while its forward-looking strategy earmarks asset diversification in its aim to become a global market leader.
In the cash and derivatives markets, HKEX’s headline average daily turnover (ADT) in cash markets improved 22% from 2017, while futures and options average daily volumes (ADV) improved 38% by annual comparison.
Yet the LME, which HKEX acquired in 2012, has been the standout growth story in its financial success despite the revenue diversification through the LME being incremental.
Since the acquisition, HKEX’s trading and clearing revenues have climbed over 60%, while ADT has doubled. The LME’s mainstay of commodities trading accounted for just 1% of revenue in 2012, while it now makes up 17%.
Meanwhile, initial product offering (IPO) funds raised last year totalled HK$288 billion, despite a turbulent year of trade war uncertainty.
HKEX’s foreign holdings in the Chinese bond market doubled to ¥1.7 trillion ($254 billion) in December 2018, largely due to its stock/bond connect, which was launched in 2014 and allows investment access to mainland Chinese markets through the exchange.
Yet the exchange’s investment in China’s onshore capital markets comes after HKEX chief executive, Charles Li, held a standalone seminar at LME Week 2018 that highlighted the country’s economic stature, while HKEX’s launch of the Qianhai Mercantile Exchange (QME) in October 2018 further exemplifies its growing focus in China.
“These developments have laid a firm foundation for the next chapter in HKEX’s growth, where we intend to transform ourselves from being a leading global exchange,” HKEX said in its strategic plan across 2019-2021. “Not only by virtue of our size, but also in terms of our asset class and product range, reach, global relevance, regulatory standards, market efficiency, culture, and technological innovation.”
The company’s key strategies for the next three years also highlighted an enhanced ‘ecosystem across asset classes’, which aims to make its markets more competitive by extending LME trading into Asian time zones and leveraging its entire suite of products to improve price discovery.
Additionally, the exchange operator has made a series of management personnel changes in light of planned developments, appointing Romesh Lamba and Calvin Tai as co-presidents, Wifred Yiu as head of markets and Bipin Patel as group risk officer.
Roland Chai has been appointed as head of post-trade amid HKEX’s efforts to bolster its clearing and settlement infrastructure, while Richard Leung will take on the role of group technology officer.
“HKEX today announced its new three-year strategic plan, which sets out our ambitions to be the global markets’ leader in the Asian time zone. Ensuring that we have the right talent and skills within our senior team will be a critical part to the successful execution of that vision,” Li said in a press statement released on February 28.