HKEX's new CEO seen focusing on product expansion, diversifying revenue

HONG KONG, Feb 10 (Reuters) - The new CEO of the Hong Kong stock exchange operator, Nicolas Aguzin is expected to focus on diversifying the bourse’s product and revenue streams, moving away from the big bang deals seen under his predecessor, investors and analysts said.

The veteran investment banker will become Hong Kong Exchanges and Clearing (HKEX)’s first permanent CEO not to come from Hong Kong or mainland China on May 24, after a three-decade career at JPMorgan.

His hiring comes as rival bourses move beyond plain-vanilla products and expand into data services and market technology, underscored by London Stock Exchange’s $27 billion takeover of Refinitiv.

With a strong pipeline of Chinese companies looking to raise capital in Hong Kong, trading volumes setting new records and strong cash reserves, Aguzin will have a smooth start but analysts are awaiting his strategy to expand the revenue base.

“HKEX is the de facto gateway to mainland China but is exploring business diversification. It is traditionally a cash exchange, and it is working to expand into futures,” said independent analyst Roger Xie, who publishes on the Smartkarma research platform.

HKEX, has benefited from high trading volumes in recent years, especially through the stock connect scheme launched in 2014.

The scheme links Hong Kong with the Shenzhen and Shanghai stock exchanges, and market participants hope it will be expanded to include companies such as tech giant Alibaba .

“All the hard work in getting Stock Connect and Bond Connect launched is done, the rest is more incremental, it doesn’t matter whether (Aguzin) is Chinese,” said Michael Wu an analyst at Morningstar, adding a likely next step for HKEX is expanding into different areas such as data products.

Cash trading currently accounts for about 60% of HKEX’s trading fees and tariffs, according to Citi.

Meanwhile, HKEX makes just 7% of its revenue from selling information such as market data and indices, according to consultancy Quinlan & Associates, compared with 28% for rivals in North America.

“We want to develop FICC (fixed income, currencies and commodities), the derivative market ... and we could all do with more international experience,” HKEX Chairman Laura Cha said on Tuesday after Aguzin’s appointment was announced.

HKEX’s closer ties to China are also expected to continue unabated under Aguzin. Li’s unfinished agenda includes launching futures contracts on the MSCI China A Index, an onshore Chinese benchmark, which await mainland approval.

However, Li’s dreams of big bang exchange tie-ups look over. HKEX announced a surprise bid for the LSE in 2019, which failed to convince LSE management and investors, but did successfully acquire the London Metal Exchange in 2012.

“I do not think (HKEX) should look at M&A outside China as their natural advantage is the Chinese market,” said Ashley Pittard, head of global equities at asset manager Pendal, a top-15 HKEX shareholder.

$1 = 7.7521 Hong Kong dollars Reporting by Alun John and Scott Murdoch in Hong Kong; Editing by Sumeet Chatterjee and Ana Nicolaci da Costa