HONG KONG: Hong Kong’s stock exchange reported its worst quarterly earnings in two 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 Ltd (HKEX) dropped 8.6% in the three months through December to HK$2.67bil (US$342mil or RM1.44bil) from a year earlier.
The results mark 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 (RM6.30 trillion) of market value last year.
Some major companies also put their initial public offering (IPO) 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.
“A prolonged IPO slump could weigh on Hong Kong Exchanges’ 2022 revenue outlook, with further downgrades likely to follow.
“A possible profit drop of over 25% for the first quarter of 2022 could be a negative catalyst,” said Bloomberg Intelligence brokers and exchanges analyst Sharnie Wong.
In 2021, the bourse reported an annual profit of HK$12.5bil (RM6.72bil), up 9% from the year earlier thanks to its record performance in the first quarter.
Average daily turnover on cash equities rose 32% last year while trading fees and tariffs jumped 31%.
Stock exchange listing fees gained 4% and market data fees increased 12%.
Even so, trading value has slumped 45% so far this year amid the city’s worst wave of Covid outbreak and as the regulatory overhang hurts investor sentiment.
Nomura Holdings Inc analysts lowered average daily trading turnover forecast for 2022 and 2023 by 4% and 2% 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 cheque companies to list in the city, seeking to catch up on a dealmaking frenzy that gripped New York last year.
Goldman Sachs Group Inc expected HKEX to benefit from a recovery in turnover in the next three 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, according to Goldman analysts Gurpreet Singh Sahi and Aria Liang. — Bloomberg