Aug 15, 2019 05:54 AM

HKEx Counts on Virtual Banking to Boost Gold Trading Business

HKEx reported its commodities revenue dropped 2% in the first half of 2019. Photo: VCG
HKEx reported its commodities revenue dropped 2% in the first half of 2019. Photo: VCG

The Hong Kong stock exchange entered the virtual banking business partly to facilitate its gold trading operation, the head of the exchange operator said Wednesday.

Hong Kong Exchanges and Clearing Limited (HKEx) is a shareholder of one of eight virtual banks that have obtained licenses from Hong Kong’s banking regulator.

Fusion Bank, formerly known as Infinium Ltd., a joint venture of HKEx, Internet giant Tencent Holdings Ltd. and state-owned bank Industrial & Commercial Bank of China, obtained a virtual banking license in May. It joined Ant SME Services (Hong Kong) Ltd., a unit of Alibaba Group affiliate Ant Financial; Insight Fintech HK Ltd., a joint venture backed by smartphone maker Xiaomi Corp.; and a unit of Chinese insurance giant Ping An Group.

HKEx’s investment in virtual banking could create synergies and bring a big boost for its gold business, HKEx Chief Executive Charles Li said Wednesday at a press conference. Li said the exchange values its gold business so much that it needs to leverage modern technology for future development.

HKEx has long sought pricing power in the Asian commodities market. The exchange currently offers renminbi and U.S. dollar gold futures contracts in Hong Kong and U.S. dollar gold futures listed on the London Metal Exchange.

The exchange reported its commodities revenue dropped 2% in the first half of 2019, reflecting a 6% decline in trading volume of certain metals contracts.

The exchange reported a 5% increase in its first-half total revenue to HK$85.78 million ($11 million), and profit rose 3% to HK$5.21 billion for the period.

The average daily turnover of equity products traded on the exchange dropped 25% to HK$75.1 billion, even though trading volume via the mainland-Hong Kong stock connect programs achieved a record high in the first half, according to the exchange’s earnings report.

Li attributed the decline in trading volume to recent high volatility on the Hong Kong stock market, which he said is more related to global macro developments, such as China-U.S. trade dispute and the Fed rate policy.

The current unrest in Hong Kong also has a big impact on the city’s financial markets, though it’s unclear now how those impacts will show, Li said. What began as peaceful mass protests last month against a controversial extradition law has deteriorated recently into street violence and confrontations with the police.

Li called for Hong Kong residents to stop the chaos and think about what they really want and do not want.

When asked whether the recent riot would affect decisions by mainland companies such as Alibaba Group to list their stocks in Hong Kong, Li said he believes such companies will come sooner or later.

As of June, 84 companies newly listed in Hong Kong raised a total of HK$71.8 billion, up 39% from a year ago. But the exchange said the number of initial public offering applications declined in the first half, without disclosing a figure.

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