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Wednesday, August 10, 2016, 23:34

HKEx dealt a blow as trading slows

By Duan Ting
HKEx dealt a blow as trading slows
Hong Kong Exchanges and Clearing Ltd (HKEx)’s net profit edged down 27 percent in the first half of this year, according to its interim report released on Wednesday. HKEx Chief Executive Charles Li Xiaojia (pictured) ruled out any significant market turnaround for the second half. (Parker Zheng / China Daily)

Plummeting revenues amid lingering economic uncertainties exacted a negative impact on Hong Kong Exchanges and Clearing Ltd (HKEx) — the city’s stock exchange operator — as it posted a year-on-year, 27-percent tumble in net profit to almost HK$3 billion for the first half of this year, against the same period in 2015.

With the prospects of major headwinds likely to stay, HKEx Chief Executive Charles Li Xiaojia ruled out any significant market turnaround for the second half.

Despite a comfortable 22-percent pickup in the benchmark Hang Seng Index (HSI) from February’s low, HKEx said on Wednesday its revenue during the period retreated 18 percent to HK$5.63 billion due to a 46-percent drop in average daily turnover from a record buying spree throughout the first half of last year.

HKEx’s share price lost 0.98 percent to close at HK$192 on Wednesday — still 30 percent down from its record high in 2015 — while the HSI added 0.12 percent, or 26 points, at 22,492.

Kenny Wen, wealth management strategist at Sun Hung Kai Financial, said although profits fell, the results were not that bad. As 70 percent of HKEx’s revenue came from trading transactions, the high base of comparison from last year’s rally led to the relative percentage decrease in net profit.

Nevertheless, the decline in daily turnover was mitigated by income from a robust Futures Exchange, whose average daily volume climbed 34 percent during the same period, while overall income from trading in futures and options surged 33 percent from a year ago.

The average daily volume of the London Metal Exchange (LME), which was acquired by HKEx in late 2012, dropped 9 percent in the first half of this year from a year ago, while total revenue was also down 9 percent to HK$886 million.

HKEx Chairman Chow Chung-kong blamed market volatility for the local bourse’s poor first-half performance. Global financial markets saw increased volatility in the first half of the year with mounting worries over a slowing global economy and wider divergence in monetary policies among major central banks following Britain’s shock decision to leave the European Union in June.

Li said he could not see any major change in market conditions in the second half as uncertainties persist.

Wen said HKEx’s performance for the year will depend on how soon the Shenzhen-Hong Kong Stock Connect can kick off, adding he expects the second stocks trading link between the SAR and the Chinese mainland to be launched in the third quarter of the year.

Li emphasized that preparatory work on the second stocks connect continues and the systems are technically ready, thus the project would go into operation once it’s approved by regulators.

HKEx said it will continue to work with the Securities and Futures Commission on joint market consultations which will end next month. The two watchdogs are embroiled in a high-profile tug of war over a plan to reform the city’s listing system and which has caused a severe backlash from the market.

HKEx also said in its interim results report it plans to build a spot commodities platform in Shenzhen’s Qianhai special economic zone, drawing experience from its LME operations. Cross-currency swaps, a volatility control mechanism and mini-H shares index options will be launched step by step this year.
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