HKEX RECORDS 31pc DROP IN EARNINGS

Biggest quarterly profit fall in five years comes as IPOs and transactions dry up amid Covid-19 curbs

Hong Kong Exchanges and Clearing (HKEX) reported its biggest decline in quarterly earnings in more than five years as a result of an investment loss while a dearth of initial public offerings and low transactions sapped its fee income in the first three months of 2022.

Net profit at the stock market operator fell by 31 per cent during the period to HK$2.67 billion, or HK$2.11 per share, worse than the HK$2.96 billion expected in an analysts’ survey by Bloomberg. Revenue dropped by 21 per cent to HK$4.69 billion, missing expectations by 4.8 per cent.

“Throughout the first quarter, HKEX showed its robustness and resiliency despite ongoing market volatility and geopolitical fragility,” chief executive Nicolas Aguzin said in a statement.

“However, 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.”

The earnings slump puts pressure on Aguzin and the blueprint he unveiled last month to reinvigorate the world’s fourthlargest financial marketplace.

Under the plan, HKEX will launch a new digital trading platform and expand the crossborder investment channels with the mainland to include exchange-traded funds.

Shares in HKEX lost 0.1 per cent to HK$321.40 after the results were announced. The stock has fallen by 34 per cent over the past 12 months, tracking the 31 per cent decline in the benchmark Hang Seng Index.

Average daily transactions on the exchange shrank by 35 per cent to HK$146.53 billion during the first quarter, sending its core business revenue down by 16 per cent to HK$4.76 billion, as trading and settlement fees declined with the decreasing volume.

Listing fees fell by 5 per cent as fundraising from new share sales plummeted by 90 per cent during the period, with most business activities curbed amid Hong Kong’s strict social-distancing rules to rein in a resurgent Covid19 outbreak.

Eleven companies raised US$1.72 billion on HKEX in the first quarter, putting Hong Kong in sixth place among global destinations for listings, the lowest number in nine years, according to data from Refinitiv.

“We are still optimistic about [Hong Kong’s potential as a global IPO market],” Aguzin said during a media briefing. “As of last Friday, there were 180 [listing applicants] in the queue. We still see a lot of interest from companies selecting Hong Kong as the listing venue of choice.”

The city’s new listing regime for overseas issuers, which broadened the scope of US-listed companies that qualified for a second fundraising, with a lower minimum market capitalisation requirement for overseas issuers, was among the new initiatives HKEX had implemented to maintain its competitiveness, he said.

The profit decline was also due to the HK$104 million investment loss by HKEX from its portfolio of global stocks and bonds, compared with a gain of HK$219 million a year earlier.

Two Stock Connect schemes with mainland bourses contributed HK$641 million in revenue during the quarter, 13 per cent lower than a year earlier.

Offshore investors traded 16 per cent fewer A shares listed in Shenzhen and Shanghai in the last quarter, based on the average daily turnover of so-called northbound trading. On the southbound flow, volume fell by 42 per cent to HK$35.5 billion per day, according to HKEX.

The exchange’s costs during the quarter rose by 7 per cent to HK$1.18 billion as a result of higher staff and IT expenses.

We are still optimistic about [Hong Kong’s potential as a global IPO market]

NICOLAS AGUZIN, HKEX CHIEF EXECUTIVE