HKEx reports biggest quarterly drop in 6 years

WITH China as its hinterland, Hong Kong Exchanges and Clearing (HKEx) is the envy of many exchanges hungry for listings, and its chief executive intends to fully leverage its China strength to become Asia’s “marketplace of the future”. 

    Speaking to the media from Guangzhou, Nicolas Aguzin, HKEx’s chief executive since last May, said the exchange will continue to “leverage its China strength and unique role as a super connector” of the world’s second largest economy with the rest of the world. 

    On Wednesday (Apr 27), HKEx reported its fourth consecutive drop in quarterly profits, and its biggest quarterly drop in six years, as the pipeline of initial public offers (IPOs) took a hit on heightened scrutiny of mainland tech companies, among others, by Chinese regulators. 

    Beijing’s zero Covid-19 tolerance has also put a strain on the economy, with Shanghai in its fifth week of lockdown and Hong Kong chafing under a third year of quarantine and travel curbs.

    For the first quarter ended Mar 31, 2022, net income fell 31 per cent on year to HK$2.67 billion (S$0.5 billion), on the back of a 21 per cent drop in revenue to HK$4.69 billion. Against Q4 2021, its net profit was broadly unchanged. Aguzin, formerly from JP Morgan, said: “We were not immune to global market sentiment which resulted in some softness in the IPO market, reduced valuations in our investment portfolio and pricing volatility in our commodities market.”

   In Q1, Hong Kong’s IPO market was slow due to market volatility, a severe outbreak of Omicron cases and a relatively bigger fall in the local stock market indices. HKEx welcomed 17 listings, raising HK$14.9 billion in funds, down 89 per cent compared with Q1 2021. 

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 “Despite Q1 IPO softness, the HKEx IPO pipeline remains very strong with more than 180 active applications since last Friday, including 10 outstanding SPAC applications as at 31 March 2022,” Aquzin said. 

   Following the introduction of the listing regime for special purpose acquisition companies (SPACs), the exchange saw its first SPAC listing, Aquila Acquisition Corporation, which raised HK$1 billion on Mar 18. More than 30 SPAC Exchange Participants (EPs) were successfully registered with HKEx and are eligible for trading SPAC securities. 

   Aguzin said SPACs were introduced to “provide an alternative way to raise capital. The objective is not a way around listings but one to complement”. SPACs are still subject to stringent listing rules. As such, he does not expect to see “a rush” in the SPACs space:”It’ going to be selective.” 

    Throughout Q1, HKEx has “demonstrated its robustness and resiliency despite ongoing market volatility and geopolitical fragility”. Continued headwinds from the macroeconomic environment are expected, but Aguzin hopes the gradual relaxation of China’s Covid-19 restrictions could provide “cautious optimism”. 

   Aguzin is confident that HKEx is “extremely well-placed, with a range of significant opportunities ahead” as it focuses on its three strategic thrusts - connecting China with the world, connecting capital with opportunities, and today with tomorrow. 

    This it intends to achieve by “strengthening Hong Kong as an international financial centre, facilitating the vital two-way capital flows between East and West, delivering vibrant, diversified markets, supporting the creation of great companies and putting our clients first”.

    In Q1, HKEx launched new products, including its first metaverse-themed exchange-traded fund (ETF), first carbon futures ETF, and first Hong Kong equity environmental social and governance (ESG) ETF, as part of its diversification effort beyng the cash market.        

 Aguzin, who is on a month-long visit to the mainland, shared that he has received “a lot of support for the development of a very strong international financial centre in Hong Kong”. 

   HKEx shares fell to HK$319 before closing at HK$321.40, down 0.12 per cent on Wednesday. The shares have lost 29 percent since the start of the year.