Stock exchanges traditionally derive much of their value from initial public offerings (IPOs) and market trading activities. Hong Kong’s, the third largest stock market in Asia and a superconnector between the East and the West, is no different.
Under its operator, Hong Kong Exchanges and Clearing (HKEX), the stock market has a capitalisation of nearly US$4 trillion and last year, HKEX reported a revenue of over US$2 billion.
By all standards, HKEX is a world-class exchange operator. Looking more internationally, however, is there greater value to be created? Is there a bigger opportunity? Looking at other global exchanges’ revenue streams, the answer would appear to be a resounding yes.
The opportunity for all exchange operators, including HKEX, is to graduate from an intermediary that merely facilitates trading and listings, to becoming a provider of solutions in high-value market data.
Nasdaq Inc, for example, is evolving its business to include data innovation. In 2021, it announced a multi-year partnership with Amazon Web Services to build the next generation of cloud-enabled infrastructure for the world’s capital markets. It has also made forays into the rapidly growing market of regulatory technology – or regtech – as companies wake up to the massive data needs of modern financial compliance.
The London Stock Exchange Group has already made the transition: today, it derives under 4 per cent of its annual revenues from listing and trading activities – most of its earnings come from its data and analytics businesses.
Progress is being made in the strategic development of the HKEX. A strategic revenue source, data and connectivity as a market segment contributes to around 10 per cent of HKEX’s earnings. There is a significant upside to developing this space, as seen from the performance of bourse operators in Europe and the United States.
This is especially as Hong Kong gears up to attract new industries and businesses in artificial intelligence (AI), fintech, new materials, new energy and biotechnology, in collaboration with other key emerging hub cities in mainland China, the Middle East and Southeast Asia.
A recent meeting between Financial Secretary Paul Chan Mo-po and director of the State Council’s Hong Kong and Macau Affairs Office, Xia Baolong, saw Xia urging all sectors in Hong Kong to be proactive and determined in transforming the economy to ensure the financial hub’s “golden brand” continues to shine.
HKEX has been making strides, giving innovative enterprises throughout mainland China and across the Asia-Pacific access to capital and funds. Up next is growing its ability to offer added value. This can come in the form of data that analyses trading patterns and investors’ capital flows, corporate announcements that shed light on industry sound bites, below-the-radar commodity data, environmental, social and corporate governance (ESG) compliance information, carbon reduction comparisons and more.
As Hong Kong returns to its fundamental role on the global investment landscape, our role as a connector between China and the world must expand. We have an excellent opportunity to become the world’s adviser as investors break into new markets, industries and enterprises, and grab new opportunities.
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HKEX Chief Executive Bonnie Chan on building a vibrant market in Hong Kong
HKEX Chief Executive Bonnie Chan on building a vibrant market in Hong Kong
HKEX’s shift to becoming more data-empowered will not happen overnight but there are some immediate opportunities to consider. One is for the exchange to strengthen its technological infrastructure and deepen its analytics development. Another opportunity is to collaborate more closely with, or even seek to acquire, already mature, data-rich businesses.
An ideal example would be the Hang Seng Indexes Company, owned by Hang Seng Bank. Integrating the company’s data would increase the depth of HKEX’s in-house data set considerably, by including the performance of Hong Kong and mainland China markets going back decades. Marketed to international investors and analysts, this data could be extremely valuable in the right hands.
Despite Hong Kong’s well-documented challenges, the city is showing resilience as it works to restore its status as an international financial centre. HKEX has to play a leading role in this endeavour. Data is the new oil and if HKEX grasps this opportunity, it can be the provider of next-generation data and intelligence to global capital markets.
With the need to reform to transform, our exchange has a chance not just to win, but to win big with data. This rests on seeing data not just as a by-product of the business, but as a fundamental asset that can power the next generation of global capital markets.
Ronald Chan is the founder and chief investment officer of Chartwell Capital Limited, a Hong Kong-based asset management company
