Hong Kong exchange looking abroad


Hong Kong's stock exchange has been under pressure due to falling profits

staff and reports

HONG KONG, China (CNN) -- The Hong Kong stock exchange on Monday said it is looking to invest in overseas markets but declined to comment on a report that deals are being planned.

Sources close to executives at Hong Kong Exchanges and Clearing (HKEx) told the South China Morning Post that a team of investment bankers will be appointed to look for investment opportunities with other exchanges or clearing houses.

They said the decision to explore deals was reached last week. They added that HKEx, which runs the exchange, would not buy foreign exchanges outright under the plan.

But the plan would seek to bring more profit to the exchange and establish cooperative relationships with other markets.

One goal is to make better use of HKEx's shareholder fund of HK$5.27 billion ($675.6 million).

That was created from the reserves of the Hong Kong Stock Exchange, the Hong Kong Futures Exchange and three clearing houses when they all merged to form HKEx in early 2000.

HKEx looking to invest

A spokesman for HKEx refused to comment on the newspaper report to CNN but said that the exchange is looking for investment possibilities.

"We're always looking for investment opportunities that will strengthen growth and enhance shareholder value, and is constantly reviewing opportunities for alliances with other exchanges and clearing houses," he said.

"Generally, professionals are appointed by HKEx to advise on possible opportunities for expansion," he added.

The Shanghai stock exchange, a potential rival to Hong Kong, has confirmed it is looking to establish an alliance with the Tokyo Stock Exchange that could see stocks listed in both countries. (full story)

But the HKEx spokesman dismissed any threat from that partnership, saying that ongoing talks to form a global 24-hour trading alliance with exchanges in Western Europe, the Americas and Asia -- including Tokyo -- are more significant.

Under pressure with falling profits

HKEx has been under pressure to boost earnings, with the company recording a 21 percent drop in net profits for the half ending June 30.

The average daily market turnover was down 20 percent to $7.6 billion ($974.4 million), which also contributed to the fall.

With that in mind, sources say alliances are a likely move to boost profits. But it may too risky for HKEx to acquire outright an overseas exchange.

Hong Kong likely will prefer to remain a passive investor. It also would not acquire any company listed in Hong Kong, to avoid conflicts of interest.

The company already holds a one percent stake in the Singapore Exchange, and in April purchased 15.6 percent of electronic bond-trading platform BondsInAsia Ltd, which is unlisted.

But international expansion carries risk for a market. Nasdaq said on August 16 that it will shutter its Nasdaq Japan venture in October, after the market amassed some $45 million in losses (full story).