HONG KONG Feb 26 With nearly half of its market value wiped out in the last three years, Hong Kong's stock exchange is hoping that a slate of new initiatives will give it a much needed boost.
Hong Kong Exchanges & Clearing Ltd, as it's formally known, has pinned hopes on a HK$3 billion ($386 million) technology upgrade, a push into yuan-denominated products and its $2.2 billion purchase of the London Metals Exchange in 2012.
A glimpse into its progress and future plans will come on Wednesday when the exchange reports 2013 results, with analysts expecting a profit of HK$4.7 billion.
The HKEx is betting on a bigger menu of yuan-denominated products in bonds, commodities and equities as Hong Kong strives to cement its position as the world's biggest offshore yuan hub. Last week it listed the first Exchange Traded Fund, or ETF, outside China that tracks the onshore bond market.
A resurgence in initial public offerings late last year has boosted listing fees, though HKEx executives know that IPO revenues alone are not the answer to its turnaround.
Indeed, the HKEx is urgently trying to tap new areas of growth and diversify away from the traditional areas of cash equity trading and equity offerings by Chinese companies.
Otherwise, the HKEx stands to lose ground as China moves towards its goal of full convertibility of the yuan, which would allow foreign investors to trade on mainland exchanges in Shanghai and Shenzhen, unfettered by quotas or other constraints.
"If China opens up too fast, or if China finds that Hong Kong can't deliver the things it wants, then we will lose our edge," chief executive Charles Li told the audience at the Asia Financial Forum in Hong Kong last month.
With a market capitalization of around $18 billion, Hong Kong's stock exchange has fallen to fourth place from first among publicly-listed international bourses, due in part to a drop in IPO volumes since 2011.
HKEx's $6 billion to $7 billion of daily turnover now pales in comparison to New York, Tokyo and mainland China exchanges, where daily turnover at each is at least four times higher.
Meanwhile, rival exchanges such as the CME Group Ltd , Intercontinental Exchange and NYSE Euronext are encroaching on the HKEx's turf, offering their own commodity and yuan-related products.
CME, for example, sees an average daily trading volume for its yuan-denominated forex and bond products of $40 billion. That compares to a daily average in January of $774 million for HKEx's offshore yuan futures, according to company data.
Regulatory hurdles also loom.
HKEx's new data center is aimed at improving its high-frequency trading offering, at a time when Hong Kong regulators have denounced such trading as potentially disruptive. Last year, regulators rejected Alibaba Holdings attempt to launch a roughly $15 billion Hong Kong IPO.
(Additional reporting by Lawrence White; Editing by Michael Flaherty and Simon Cameron-Moore)