Profits at Hong Kong’s stock exchange hit a record high in the first half as the prospect of forced delistings from US bourses encouraged Chinese tech groups to list billions of dollars of shares in the city.
But Hong Kong Exchanges & Clearing’s stock fell following the company’s results on Wednesday, as the revenue windfall from big-ticket share sales by internet businesses including NetEase and JD.com proved smaller than some investors had hoped.
Core revenues rose 6 per cent from a year ago to HK$3.5bn in the second quarter, coming in a touch shy of consensus analyst estimates compiled by Citi.
Cash turnover from securities trading, an important revenue driver, for the period fell 6 per cent from the previous quarter. Listings fees also shrank 11 per cent from a record high in the first quarter, while derivatives trading dropped 22 per cent.
But income from investments swung from a first-quarter loss to HK$885m in the three months to the end of June, helping push net profit to HK$3bn for the period. Net profit for the entire first half rose 1 per cent to a record HK$5.2bn.
“With robust trading volumes, a strong initial public offering pipeline and an expanding product portfolio, including the suite of newly launched MSCI index futures, I am confident that HKEX will continue to play a major role in connecting China and connecting the world,” said Charles Li, the exchange’s chief executive.
In addition to new listings, Mr Li pointed to strong volumes on the Stock Connect programme, which allows international investors to access mainland Chinese stocks, which have rallied this year.
He also referred to “increasingly complex” geopolitical difficulties, pointing to “tensions between the US and China”.
HKEX’s shares fell as much as 2.1 per cent in afternoon trading. The stock is still up almost 50 per cent during the year to date, however.
The rally has made HKEX the most valuable stock exchange in the world, as investors bet on a steady flow of secondary floats by US-listed Chinese companies. An increasingly hostile White House and Congress have threatened to evict Chinese groups from Wall Street as tensions rise between Washington and Beijing.
Analysts said investors had expected more of a boost to HKEX revenues from these listings, which raised $6.6bn this year in the first half.
“We found that some investors overestimated the impact from secondary listings,” said Shujin Chen, analyst at Jefferies.
Ms Chen said that even if all 30 US-listed Chinese companies that currently meet requirements carried out secondary share placements in Hong Kong at a similar size to those of NetEase and JD.com, it would only boost HKEX revenues by about 3 per cent.
“Even if they convert all their ADRs to Hong Kong shares it will result in a 6.5 per cent revenue increase — still lower than a lot of people expect,” she added, referring to the possibility of Chinese companies delisting from the US and refloating all their shares in Hong Kong.
Ms Chen was more optimistic about the second half of 2020, noting that derivatives trading had picked up in July and was likely to get a further boost during the rest of the year thanks to recently introduced MSCI index futures. The bourse could also benefit from the proposed listing of Ant Group, the financial technology arm of ecommerce group Alibaba, which was recently valued at $150bn.
Mr Li, who announced earlier this year he would step down from his role as chief executive, declined to provide further information on his successor.
“The board is actively working on it and I’m just as keenly looking forward to hearing a concrete development,” he said.
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