Hong Kong Bourse’s Li ‘Not Losing Sleep’ Over Slowed IPOs

Hong Kong Exchanges & Clearing Ltd.’s expansion into new asset classes means slowing initial public offerings aren’t a concern, said Charles Li, chief executive of the No. 1 bourse operator by market value.

IPOs and average daily trading volumes reflect market sentiment, which is why the company is entering new asset classes, including commodities, Li told Bloomberg Television’s Susan Li. Hong Kong Exchanges bought the London Metal Exchange, which handles trading of 83 percent of global base metals futures, for $2.2 billion in December.

The bourse operator yesterday reported its lowest quarterly profit since the global financial crisis and fifth consecutive decline in three-month earnings. Companies raised $8 billion through IPOs in Hong Kong last year, the least since 2003 and down 63 percent from 2011, according to data compiled by Bloomberg.

“People somehow always associate Hong Kong exchange with IPOs,” Li said. “I’m not losing sleep over IPOs. This whole change and shift away from cash equity is to make sure we actually lock ourselves in -- real global leading exchanges are not IPO markets. Many of the pure cash equity exchanges in the world are really faltering.”

Global equity volumes plunged last year, squeezing exchanges as slowing economic growth in China and the U.S. and Europe’s sovereign-debt crisis sapped investor confidence.

IPO Slowdown

Hong Kong Exchanges net income fell 32 percent to HK$864 million ($111 million) in the fourth quarter, from HK$1.27 billion a year earlier, according to figures derived from the company’s full-year statement. That compares with the average HK$1.11 billion estimate of three analysts surveyed by Bloomberg News. The result was the worst since the first quarter of 2009.

For the full year, net income fell 20 percent to HK$4.08 billion, or HK$3.74 a share, from HK$5.09 billion, or HK$4.70 a share, a year earlier. That compares with the average HK$4.29 billion estimate of 20 analysts.

Hong Kong Exchanges will introduce after-hours futures trading on April 8, a move it says is necessary and will allow investors to hedge and adjust positions when news breaks in European hours. Local brokers are concerned that changes to Hong Kong’s market structure, also including longer trading hours and the reinstatement of a closing auction, will mean they can’t compete.

“We are not in the business of guaranteeing that everyone can succeed and compete,” Li said. “What we will do is make sure the rules are fair, the rules are equal. To the extent there is a segment of the market that will be affected adversely by certain things, we are trying to see whether we can mitigate that.”