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Hong Kong Exchanges & Clearing on Tuesday marked a decisive break from decades of reliance on cash equities as it laid out a strategy to becoming the main gateway for domestic Chinese investors seeking greater access to the rest of the world.
The HKEx will focus on becoming a “multi-asset class exchange” that serves as a “one-stop shop for Chinese investors”, it said in a statement, and hopes to see a “breakthrough” in the commodities business following its acquisition of the London Metals Exchange last year.
The company also believes that the next three years will see an acceleration of the opening of China’s capital account, and will pivot further towards serving the needs of mainland investors rather than international investors seeking greater access to China.
“China will gradually become a capital export story,” said Charles Li, HKEx chief executive, as he presented the company’s 2013-15 strategic plan. There is “huge pressure on China to internationalise, to go over the border, to spend”, he added.
HKEx plans to expand its range of renminbi-denominated products across asset classes to prepare for a future increase in investment from the mainland.
“As the mainland’s growth continues to evolve, we expect the mainland’s needs to shift increasingly from capital formation to investment diversification and risk management across all asset classes, reflecting the country’s transformation from an importer of capital to an exporter of capital. A presence in multiple asset classes will position us to serve the mainland economy across a broad front during this evolution,” said the exchange in its strategic plan.
In June, the Hong Kong, Shanghai and Shenzhen exchanges together invested HK$300m ($39m) to create a joint venture designed to facilitate cross-border trading.
Over the weekend, China’s central bank published a document that included a reference to planned trials of a new scheme to allow domestic Chinese investors greater access to overseas markets. The bank gave no details of the programme – dubbed QDII2, a sequel to China’s existing qualified domestic institutional investor scheme – but just the mention of pending reforms helped drive China’s main index of shares up to a six-month high.
HKEx is keen to diversify away from the low-margin cash equities business, which still makes up about 75 per cent of its revenues. Trading volumes dropped below HK$50bn a day in the third quarter, a fall of 36 per cent.
The purchase of the LME, which completed in December, will be used as a “catalyst” for building a commodities business, the exchange said. Mr Li said that the combination of a commodities business and the growth of Chinese participation in Hong Kong-issued equity products will help to develop a fixed income and currency business in the city.
HKEx shares rose 1.4 per cent on Tuesday, while the Hang Seng index fell 0.1 per cent.