HKEX Posts Quarterly Profit Growth as IPO, Trading Activity Picks Up — Update

By Kimberley Kao

Hong Kong Exchanges & Clearing reported profit growth for the first time in three quarters as initial public offerings and trading activity improved, pointing to a nascent recovery in the stock market.

The stock-exchange operator said Wednesday that its second-quarter net profit rose 8.6% from a year earlier to 3.155 billion Hong Kong dollars, equivalent to US$405.1 million.

Revenue was up 8.0% to HK$5.42 billion, it said, with core business revenue rising 6.5% on higher trading and clearing fees from increased volumes across the cash, derivatives and commodities markets. Its headline average daily turnover rose 18% to HK$121.6 billion in the second quarter.

Shares closed 1.5% lower at HK$228.60 after the results.

HKEX had been struggling to boost performance as it faced headwinds including a prolonged stock-market slump, concerns about China's economy and foreign investors exiting the city, factors that have chipped away at Hong Kong's reputation as a destination for global listings.

The Hong Kong exchange operator said its IPO pipeline improved, with 107 active applications as of June. It said it received 81 IPO applications in the first six months of the year, up 69% from the second half of 2023.

HKEX said it is ranked fourth globally by number of IPOs, with 43 completed so far this year.

"Given the high interest rate environment [now], it is not exactly conducive [for] IPOs," Bonnie Chan Yiting, who took over as chief executive in March, said in her first interim-results briefing.

Speaking about its strategic development, Chan said the stock exchange's "diversification strategy helped mitigate lower cash market volumes, with record volume in the commodities, derivatives, and ETP [exchange-traded product] markets."

This "reflected a wider selection of products in the ecosystem, as well as sustained demand for risk management instruments in times of market volatility," Chan said.

The results, which HKEX said were its best for the second quarter, were largely in line with market expectations, though analysts flagged concerns about weak investor sentiment in the short term.

There is still "subdued market risk appetite" amid worries about China's economy and the lack of positive catalysts from its key political meetings, as well as the uncertainty surrounding the U.S. presidential election, DBS Group Research said in a note.

In the near term, macro uncertainties will continue to weigh on the Hong Kong market, and investors' risk appetite will likely remain low, they said.

Citi research analyst Michael Zhang said in a note that there is potential for "further earnings risk if market sentiment remains weak."

Factors that could lift HKEX's share price include greater clarity regarding the regulatory market environment relating to IPOs, a further shift in trading activities to Hong Kong listings from American depositary receipts, and easing geopolitical tensions, Zhang said.

The Hong Kong government has been seeking to boost the stock market amid macroeconomic concerns, introducing measures to expand the scope of the Stock Connect program that allows mutual access between China's and Hong Kong's capital markets. The city's government last week said the measures have improved sentiment, though the "delayed U.S. interest rate cuts and concerns about the mainland's economic recovery momentum" capped gains on the benchmark Hang Seng Index, which closed the second quarter 7.1% higher than the quarter ended March.

Hong Kong's Hang Seng Index is up 2.0% so far this year.

Write to Kimberley Kao at kimberley.kao@wsj.com

(END) Dow Jones Newswires

August 21, 2024 07:14 ET (11:14 GMT)

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