Hong Kong bourse redeems investments after profit miss

Hong Kong's stock exchange is redeeming some of its external investment portfolio after profit slid more than estimated, weighed down by falling markets, trading and initial public offerings (IPOs). 

Net income fell 22 per cent to HK$2.17 billion (S$381.7 million) in the second quarter, Hong Kong Exchanges & Clearing (HKEX) said in a statement. That missed a HK$2.52 billion consensus estimate in a Bloomberg survey. It was the fifth consecutive profit decline as core revenue in the period slid 4 per cent. 

The exchange has been hurt by sliding markets and the still tight Covid restrictions that have prevented bankers from travelling, while more mainland Chinese firms are seeking to list on rival bourses in Shanghai and Shenzhen. In the first half, IPOs were down more than 90 per cent while overall trading volumes slid 27 per cent.

The bourse lost HK$274 million in the quarter on its investments, compared with a profit a year earlier and said it will redeem HK$2 billion from the external portfolio in the second half. The redemption will be invested internally in the corporate fund, which is placed in cash and bank deposits, equities and debt.

Reducing the external portfolio will lower fluctuations in earnings, the exchange said, citing significant market volatility, rising interest rates and global economic pressures.

HKEX's shares slid 1 per cent to HK$343.20 as at 1.34 pm, extending this year's decline to 24.7 per cent.

However, the bourse, led by former JPMorgan Chase & Co banker Nicolas Aguzin, has maintained that the IPO pipeline is strong and may now see a reboot as tension over auditing rules could bring a bevy of mainland Chinese firms to list or become more anchored in the city. Alibaba Group announced in July it would seek to add another primary listing in Hong Kong while Chinese state-owned giants such as China Life Insurance, and PetroChina said this month they would delist in New York. 

In a report this month, Goldman Sachs Group predicted that the bourse's average daily turnover will bottom out at HK$111 billion in the third quarter, then jump about 20 per cent in the next year. Future momentum is hinged on the bourse's further IPO reforms, targeting companies in the deep-tech space and a review of its small-cap platform, Gem. 

"If implemented, such reforms could further enlarge the pipeline and setup for better 2023 in regard to new listings and incremental volume growth," Goldman Sach's analysts led by Gurpreet Singh Sahi wrote in a note dated Aug 5. Bloomberg

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