HKEX posts worst quarterly profit since China crackdown

Hong Kong

HONG Kong's stock exchange reported its worst quarterly earnings in 2 years as China tightened scrutiny on offshore listings and widened a crackdown that has roiled markets and hit trading.

Net income at Hong Kong Exchanges & Clearing dropped 8.6 per cent in the 3 months till December to HK$2.67 billion (S$463 million) from a year earlier. The result marks the third straight drop in quarterly profit.

The bourse of the Asian financial hub bore the brunt of China's deepening crackdown that has upended the nation's technology giants and debt-ridden developers, wiping out more than US$1.5 trillion of market value last year.

Some major companies also put their initial public offering plans on ice after China imposed cybersecurity checks, causing the HKEX to drop from the global top three IPO venues.

"The global economic recovery is expected to continue throughout 2022, although numerous challenges posed by uncertainty surrounding the pandemic recovery, ongoing geopolitical risks, restrictions on travel and upcoming interest rate hikes will all affect our business in the year ahead," HKEX chairman Laura Cha said in a statement.

In 2021, the bourse reported an annual profit of HK$12.5 billion, up 9 per cent from the year earlier thanks to its record performance in the first quarter.

Average daily turnover on cash equities rose 32 per cent last year while trading fees and tariffs jumped 31 per cent.

Stock exchange listing fees gained 4 per cent and market data fees increased 12 per cent. Even so, trading value has slumped 45 per cent so far this year amid the city's worst wave of Covid outbreak and as the regulatory overhang hurts investor sentiment.

Nomura Holdings analysts lowered average daily trading turnover forecast for 2022 and 2023 by 4 per cent and 2 per cent respectively.

HKEX has taken initiatives to stay competitive and boost profit. The firm launched MSCI China A50 futures contract in October, potentially making it a blockbuster alternative to the long-standing rival product in Singapore used to hedge Chinese investment.

Hong Kong also proposed a strict framework for blank check companies to list in the city, seeking to catch up on a dealmaking frenzy that gripped New York last year.

Goldman Sachs Group expected HKEX to benefit from a recovery in turnover in the next 3 years as listed firms' earnings improve.

Robust trading through the southbound Stock Connect and a shift from US-listed Chinese companies to Hong Kong for dual listings could also help, said Goldman analysts Gurpreet Singh Sahi and Aria Liang. BLOOMBERG