Hong Kong exchange posts 31% rise in H1 profit despite IPO malaise

HONG KONG, China  -Hong Kong’s stock exchange operator reported a “strong” first-half net profit of HK$6.31 billion ($807 million) on Wednesday, up 31 percent from the same period last year despite IPO activity being impacted by “global market fragility”.

It was a “good half year for HKEX, despite continued global macro uncertainty”, bourse chief executive Nicolas Aguzin said in the earnings report.

First-half revenue rose 18 percent year on year to $1.4 billion.

The bourse attributed the strong revenue result — its “second best ever” — to a $345 million net investment income buoyed by high interest rates, and the strong performance of its external portfolio.

“In the first half of 2023, Hong Kong Cash Market trading volume and IPO activity continued to be impacted by global market fragility,” HKEX said in its announcement.

“The global IPO market was weak, though Hong Kong performed relatively well.”

Still, new listings in the first six months raised just $2.3 billion, down nine percent from the year before.

The figures were also a sharp contrast to peak levels in 2020, when IPOs raised $51 billion.

Covid, crackdowns

Hong Kong’s bourse has only recently emerged from the shadow of the city’s strict zero-Covid policy, which spooked international investors and tanked the wider economy.

New listings from China’s mega-companies also dried up in recent years following Beijing’s regulatory crackdown on the property and technology sectors.

The bourse last month axed a rule that required mainland Chinese firms to discuss “material differences between the laws and regulations” in China and Hong Kong in their listing documents.

At a Wednesday press conference, Aguzin said the move was to standardise disclosure practices for companies regardless of where they incorporate.

“We have not softened at all our disclosure requirements,” he said.

“Any company that lists in our markets, they need to disclose in detail jurisdictional risks, material risks that they may have.”

‘Committed’ to LME

Aguzin also said HKEX remained “committed” to the London Metal Exchange (LME) and had seen “continued confidence and trust” despite the fallout from recent nickel trading scandals.

“We think it’s a great institution and look forward to… progress in all the initiatives that they have in making the market more resilient,” he added.

The bourse this year signed cooperation agreements with stock exchanges in Saudi Arabia, Indonesia and Beijing, with cross-listing being mulled in some cases, Aguzin said.

He added that HKEX was looking to continue diversifying its product lineup, including with derivatives, so it was not “dependent on just the cash market”.

In its Wednesday results announcement, HKEX said the IPO market showed “signs of good momentum” in the second quarter and that it had 104 active applications for new listings as of June.

“We are pleased to see encouraging signs of a revival in our IPO market, matched by a very healthy pipeline,” Aguzin said.

Average daily turnover of equity products in the first half fell by 14 percent year on year.

The bourse’s stock price has declined by around 13 percent since the start of the year.