Hong Kong Exchanges signals tough macro backdrop after profit slump

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HKEX saw a 31% decline in year-over-year earnings in the first quarter of 2022.
Source: Hong Kong Exchanges and Clearing Ltd.

The Hong Kong stock operator expects trading to remain muted and the sluggish equity fundraising market to continue after reporting its biggest year-on-year drop in net profit since 2016.

“We were not immune to global market sentiment which led to some weakness in the IPO market, declining valuations in our investment portfolio and price volatility in our commodities market” , Hong Kong Exchanges and Clearing Ltd. CEO Nicolas Aguzin said in an April 27 statement. deposit.

Hong Kong stock exchanges reported a 21% year-on-year drop in first-quarter revenue to HK$4.7 billion, due to a 16% decline in core business revenue due to lower trading volumes and lower deposit fees. Profit attributable to shareholders for the quarter fell 31% year-on-year to HK$2.7 billion.

Trading revenue fell 35% year-over-year to HK$146.5 billion, although it was up 16% from the prior quarter. The stock trader said market sentiment was affected by uncertain geopolitical tensions, high inflation risk and the higher interest rate environment. Although trading volumes in the first quarter were higher than the previous quarter, the effect was offset by lower net investment income, the exchange said.

lackluster trade

Revenue from the connect programs with the Shenzhen Stock Exchange and the Shanghai Stock Exchange, which allow investors from mainland China and Hong Kong to trade in each other’s markets, fell 13% year-on-year. another to reach 641 million HK dollars.

Hong Kong investors traded securities worth 105.9 billion yuan in mainland China during the quarter, down 16% from the year-ago period. Turnover for mainland Chinese investors trading in the Hong Kong market fell 42% to HK$35.5 billion in the first quarter.

A wave of COVID-19 infections swept through Hong Kong in 2022, triggering the strictest social distancing measures since the pandemic began. In mainland China, Shanghai has been in lockdown since late March and Beijing began mass testing on April 25 as China battles a rise in cases that are expected to weigh on the economy.

The outbreak, coupled with headwinds such as rising U.S. interest rates, pose risks to investor sentiment, said Lorraine Tan, director of Asia equity research for Morningstar.

Fall of the IPO

In the first quarter, the exchange helped 17 companies raise combined IPO proceeds of HK$14.9 billion, down 89% from the year-ago quarter. Of that total, 48% of IPO funds came from new economy and biotech companies, the exchange said. On March 18, the exchange hosted its first special purpose acquisition company listing of Aquila Acquisition Corp., which raised HK$1 billion.

The exchange had more than 180 companies in the IPO process as of April 22, Aguzin said. At least 10 of them are SPAC applications.

With no major IPOs, the Hong Kong stock exchange’s ranking in terms of fundraising value fell to sixth in the first quarter from second in the year-ago period, according to a survey by accounting firm Deloitte in April.

The decline in enrollment is due to the regulatory overhang and economic slowdown in China, Nomura said in an April 22 research note. Weakness in stock market sentiment due to recent COVID-19 shutdowns and less-than-expected policy easing also contributed to the drag, the Japanese brokerage said, adding that it expects the total volume of fundraising in 2022 decreases by 9% compared to the previous year.

As of April 26, US$1 was equivalent to 6.56 Chinese yuan.

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