HKEX Sees Mainland Stock Connect Strategy Start to Pay Off

Updated on
  • Revenue from trading links more than doubled year-on-year
  • Connections with mainland markets a central part of strategy

Hong Kong Exchanges & Clearing Ltd.’s plan to be the gateway to the world’s second-biggest stock market seems to be slowly but surely paying off.

A key plank of HKEX Chief Executive Officer Charles Li’s strategy is a system of trading links between the bourse and exchanges in mainland China. Results following the start of a second stock link in December, with Shenzhen, suggest traders are keen on the approach.

The two stock connect programs generated HK$277 million ($35.5 million) in revenue and other income for the first nine months of the year, more than double the year-ago period, according to a statement on Wednesday. Shenzhen’s addition to the system, two years after the start of the link with Shanghai, increased to more than 1,500 the number of mainland-listed shares available to traders via Hong Kong.

Li wants to see the links expanded to eventually include newly-listed shares, exchange-traded funds, derivatives and commodities to make HKEX a “global deployment center’’ for Chinese wealth, he told Bloomberg earlier this year. While the revenue from the connects is still relatively small, it could be just the start if Li has his way.

International Roadshow

HKEX completed an international roadshow in September with the Shenzhen Stock Exchange and China Securities Depository and Clearing Corporation Ltd., it said in the statement. The effort saw the group meet with more than 150 investment institutions in Canada, the U.S., Singapore and Australia, it said. It is working with regulators and the mainland bourses to “further enhance the operating model of stock connects,” it said.

The number of special segregated accounts in Hong Kong, used by institutions for the stock connects, rose 70 percent in the first three quarters to more than 2,000, Bloomberg reported in October.

A third link with the mainland, for bonds, was started in July. Though HKEX didn’t provide financial figures for the system, it said that by the end of the third quarter there were 184 approved international investors, 24 onshore dealers and 50 Hong Kong local custodians participating in the connect.

The exchange operator said Wednesday its third-quarter profit was HK$2.03 billion, a 32 percent increase from a year earlier. Revenue and other income was HK$3.45 billion, HKEX said, compared with HK$2.85 billion. Revenue from equities trading fees and tariffs rose 18 percent year-on-year, according to the statement. The company’s shares closed down 0.6 percent Wednesday. The stock had earlier risen as much as 2.9 percent, hitting its highest level since July 2015.

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