UPDATE 2-China competition raises worries on HKEx outlook

* Q3 net up 33 pct to HK$1.27 bln vs forecast HK$1.25 bln

* Q3 average daily turnover up 5 pct yr/yr, down 6.6 pct q/q

* Analysts express concern on competition from China

* Shares trim loss but still down 0.9 pct (Recasts with analyst comment)

By Donny Kwok

HONG KONG, Nov 11 (Reuters) - Hong Kong Exchanges & Clearing (HKEx) (0388.HK) faces increasing competition from China, posing a challenge for the world's second-largest listed exchange operator to keep up the momentum on robust third-quarter profits.

Concerns over the longer term competitiveness of the Hong Kong Stock Exchange have grown, with average daily turnover down 6.6 percent in the third quarter from the second quarter. Turnover, though, was up 5 percent year-on year, as the stock market notched a 14 percent gain for the quarter.

"For the time being, Hong Kong is still a prefered listing venue for many major corporations, but in the longer run, Shanghai may take that place," said William Lo, analyst at Ample Finance Group. "Apart from IPOs, we can't see any very strong growth factors that can boost its revenue."

HKEx shares were down 0.92 percent at HK$140.50 in afternoon trade after the results came out, trailing a 1.08 percent gain in the broader market .HSI.

Macquire said the excitement over HKEx, whose shares have nearly doubled this year, had faded and maintained its "underperform" call on the stock with a target price of HK$118.

"We think the recent introduction of the (growth enterprise) board at the Shenzhen Stock Exchange will to some extent reduce the attractiveness of the GEM board in Hong Kong," Macquire said in a research note last week.

Earnings at HKEx, which recently slipped behind global No.1 CME Group (CME.O) in market capitalisation terms, outperformed regional rival Singapore Exchange (SGXL.SI), which last month posted an 11 percent rise in net profit for the same period. [ID:nSIN541309]

'ASSET BUBBLES'

HKEx on Wednesday reported a net profit of HK$1.27 billion ($163.9 million) for the July-September period, up 33 percent from HK$959.65 million a year earlier just before the global downturn reached full-steam.

The result was in line with an average forecast of HK$1.25 billion from three analysts surveyed by Reuters, but marked a decline over the HK$1.37 billion profit it reported for the second quarter of 2009.

"The decrease in profit (from the previous quarter) was mainly driven by the lower market turnover and lower net investment income," chairman Arculli Ronald Joseph said in a statement.