LME, listing challenges ahead for HKEx

Hong Kong Exchanges and Clearing, which will announce financial results on Wednesday, is facing the twin challenges of capturing more listings and devising strategies to turn the London Metal Exchange into a growth engine, according to brokers and analysts.

They believe the exchange could still report a profit growth of about 15 to 16 per cent last year on the back of increased trading fee income driven by higher market turnover, but point out that the exchange lacks a strong growth engine.

"We view HKEx's earnings drivers as currently depressed - equity market volatility and investors' interest in China stocks are at low levels," a Goldman Sachs report said.

The report added that "LME fee rates are unchanged at very low levels and IPO activity from China has faded".

On a brighter note, the Goldman report said the HKEx could benefit from China's third plenum initiatives to open up the country's capital account. In addition, the LME would be allowed to change its fees from next year.

Credit Suisse, which expects the HKEx will report about 16 per cent net profit growth to HK$4.75 billion, said in a report "the investment case for HKEx is longer-term growth as the China listed market continues to evolve, with HKEx being the key global gateway with strong operating leverage".

However, in the short term, "HKEx's fortunes are much more linked to current market volumes", it said.