HKEX to offer more A-share derivatives and financial products to affirm Hong Kong’s role as China’s offshore capital hub, Aguzin says

• Nicolas Aguzin, chief executive of HKEX since late May, will encourage investment banks to issue structured products based on the MSCI A 50 index
• That move and others will help the exchange further advance its “privileged position” connecting China to the rest of the world, Aguzin tells the Post

Hong Kong Exchanges and Clearing, the bourse operator of Asia’s third-largest stock market, will facilitate the launch of more products based on a key A-shares index to strengthen its role as a connector between China and the world.

“One of the areas that we are focused on is building the marketplace of the future,” Nicolas Aguzin, chief executive of HKEX since late May, said in an interview with the South China Morning Post. “Today, Hong Kong is the largest listed structured-products market in the world.”

Aguzin would like to use that strength to encourage investment banks to issue structured products – such as derivative warrants – based on the MSCI A 50 index, which tracks the 50 largest Shanghai and Shenzhen stocks.

“I would think that would be an amazing push to our A-share ecosystem,” Aguzin said.

While the Hong Kong exchange has listed mainland companies since 1993, it only got its first A shares futures listing in October, allowing international investors to hedge their investments in shares listed in Shanghai or Shenzhen.

The MSCI China A 50 Connect (USD) Index futures have proved successful, with an average daily turnover of about 20,000 contracts. That makes them one of the most popular index-futures products, a flagship derivative of the exchange alongside the Hang Seng Index futures and Tech Index futures.

Two months after the A 50 futures launch, three fund companies in December issued A 50 Exchange Traded Funds (ETFs). The issuance of structured products based on the A 50 will be the next step forward for Hong Kong to develop itself as a trading hub for A-share products.

Aguzin, who left JPMorgan to join HKEX in May last year, is the first non-Chinese person to head the exchange; he is Argentinian by birth but is a Hong Kong permanent resident. He does not believe his origin prevents him from communicating effectively with mainland-China stakeholders.

“I spent all of April in the mainland,” he said. “I managed to meet with a lot of stakeholders, counterparts, and our partners. I sensed a lot of support as I found out that there is a strong desire for making sure that Hong Kong succeeds and develops as an international financial centre.”

The HKEX, which formed from the merger of the stock exchange, the futures exchange and three clearing houses in 2000, marks the 22nd anniversary of its establishment this month. It has played a major role in market reform and the development of the local capital market for much of the 25 years since the city’s handover to China in July 1997.

HKEX has become a fundraising hub for mainland companies, which now represent 80 per cent of its total market capitalisation, compared with only 15 per cent in 1997. Stock market turnover rose 10 times during the past 25 years to about HK$150 billion per day, while total market cap has grown 12 times to HK$38.9 trillion (US$5 trillion). The city has been the largest initial public offering market worldwide seven times in the past 13 years, although IPO activity this year has been tepid.

“It reflects all the progress and all the things that we have done in the financial markets locally in Hong Kong.” he said. “The Hong Kong exchange has this incredibly privileged position of being in a place that is unique. We are the most international city in China and we are the most Chinese city outside the mainland.”

While he acknowledges the macroeconomic challenges posed by geopolitical tensions, rising interest rates, and inflation, Aguzin is still optimistic about the future of Hong Kong.

“The best years are ahead of us,” he said. “Chinese capital markets are probably going to have the best years in the next 10 years. I expect the capital markets to grow from about US$30 trillion to over US$100 trillion.”

Looking ahead to the next 25 years, Aguzin believes it’s crucial that Hong Kong continue to leverage its unique position as a connector between China and the world.

Since 2014, Hong Kong has linked up with mainland markets through several cross-border schemes, including two stock connects, a bond connect and the Wealth Management Connect scheme. Soon, the ETF Connect will help further consolidate that role, he said.

Aguzin’s predecessor Charles Li Xiaojia led the bourse’s first overseas acquisition, of the London Metal Exchange (LME) in 2012, but failed to buy the London Stock Exchange in 2019. Aguzin is not in favour of such pursuits for now.

“Our priority is not to look for a big acquisition,” he said. “I would not be tremendously focusing on a large international acquisition because we have everything right now to succeed. There are some niche areas where we may use, potentially, an acquisition, a partnership, or a collaboration to expand, but I would not think about making a big transaction.”

Aguzin does plan to establish two new international offices – one in New York and the other in Europe – over the next year to expand the exchange’s international reach.

As unveiled in his blueprint in March, the exchange later this year will introduce a pilot platform called Diamond to initially trade environmental, social and governance (ESG) products such as carbon emissions contracts. The platform will also consider trading digital assets and megatrends.

Aguzin envisions Diamond as a platform for experiments, which he said will help the exchange explore new areas and make sure its systems keep pace.

“The key point is that we have this concept of connecting today with tomorrow,” he said. “In doing that, we need to understand how all the different possible systems and infrastructure works.”

The LME has been under spotlight after its suspension of nickel trading in March resulted in some lawsuits by some investors.

“We look forward to finding ways of structuring the market in a way that we can make it even better for the future,” Aguzin said. “We want to learn from everything that happened to make it a really great exchange for the future.”

Author: Cheryl Heng, SCMP