(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Hudson Lockett
HONG KONG, April 24 (Reuters Breakingviews) - Hong Kong Exchanges and Clearing can only help itself up to a point. The first set of earnings delivered on Wednesday by new CEO Bonnie Chan shows some progress in diversifying revenues but the bourse operator needs official support to reverse a rout that has halved the company’s market value to $37 billion over the last three years.
Core business revenue dropped 7% year-on-year in the first quarter as average daily turnover for equity products fell by more than a fifth. HKEX made some progress in boosting activity in derivatives and over the counter trading, but investment income, which previously helped offset weakness elsewhere, fell 3%. It can't count on that to cushion earnings in the future as global interest rates plateau.
And despite a pipeline of 85 active applicants for new listings, the bourse saw just a dozen initial public offerings in the first quarter with an average deal size of about $50 million, according to Breakingviews calculations based on exchange data. The three small companies that flopped on debut this week are a far cry from the jumbo deals that once whet global investor appetite, spurring a surge in fee revenue.
There are, however, signs Beijing is willing to provide some support: on Monday, China’s securities regulator said it would let mainland investors trade some Hong Kong stocks using renminbi, removing foreign exchange risks. But the impact may be limited since many large Chinese companies are also traded onshore.
A more welcome move would be for mainland officials to encourage debuts in the financial centre. They are busy tightening standards for prospective listings in Shanghai and Shenzhen, and pushing strategic companies to the front of a long listings queue. The Asian hub offers a place for other firms to trade.
Hong Kong’s government can help as well if it decides to further reduce a 0.1% stamp duty that makes high frequency share trades prohibitively expensive, having already cut that tax to pre-pandemic levels late last year to try and boost liquidity.
On these fronts, Chan will have fresh reinforcements to implore officials to act. The Hong Kong government looks set to name Carlson Tong, former chair of the city's Securities and Futures Commission, as the HKEX's new chair.
Chan put a brave face on earnings, saying the bourse was optimistic about it ability to capitalise on the long-term growth of China. To make good on that goal, she will need to convince Beijing that having a strong market operator across the border is in its interest.
Follow @KangHexin on X
CONTEXT NEWS
Hong Kong Exchanges and Clearing on April 24 reported net profit of HK$2.97 billion ($379 million) in the first quarter, down 13% from a year ago. Core business revenues fell 7% on the back of lower trading activity and a dearth of new listings.
HKEX shares were up 3.6% after the earnings were announced.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Hong Kong Exchanges value has halved
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Editing by Una Galani and Nivedita Bhattacharjee)
((For previous columns by the author, Reuters customers can click on hudson.lockett@thomsonreuters.com; Reuters Messaging: hudson.lockett.thomsonreuters.com@reuters.net))
Comments