Hong Kong's stock market operator warned of the impact from continued market turmoil on initial public offering and trading volumes as it reported a 30% year-over-year decline in profit for the third quarter ended Sept. 30.
Macroeconomic and geopolitical factors will continue to drag on market sentiment and volumes, Hong Kong Exchanges and Clearing Ltd. said in its earnings presentation Oct. 19. The bourse reported a 17% year-over-year drop in revenue for the third quarter on the back of lower average daily turnover, a key source of revenue. The decline was attributed to concerns over rising inflation and slowing global growth, which adversely affected market sentiment. Average daily trading on its platform in the first nine months of 2022 fell 31% year over year to HK$124.1 billion, HKEX said.
Profit attributable to shareholders for the third quarter fell to HK$2.26 billion from HK$3.25 billion in the prior-year period.
"Looking ahead in the short-term, headwinds will continue to affect the broader environment in which our business operates," HKEX CEO Nicolas Aguzin said during an Oct. 19 conference call. "We expect that ongoing market volatility, inflationary pressures, the rising interest rate environment and slowing global growth could continue to impact our business."
IPO activity on stock exchanges around the world fell in 2022 as investors became more risk averse amid interest rate hikes, rising inflation and Russia's ongoing war in Ukraine. The number of global IPOs dropped more than 45% year over year in the third quarter, with the total amount offered in IPOs that did move ahead plunging nearly $73 billion, according to S&P Global Market Intelligence data. HKEX, one of the largest listing venues in the world, was not an exception. It has continued to struggle to maintain IPO and trading activity on its platform for the last six quarters.
Counting on IPOs
Listing activity on the Hong Kong bourse bounced back slightly, with 29 companies raising HK$53.5 billion in the third quarter, compared to HK$19.7 billion raised in 27 listings in the first half. In the third quarter, the exchange welcomed the largest IPO of 2022 so far from China Tourism Group Duty Free Corp. Ltd., which raised HK$16.24 billion.
The bourse also saw "homecoming" secondary listings from wealth and asset management company Noah Holdings Ltd. and Tencent Music Entertainment Group, while the likes of OneConnect Financial Technology Co. Ltd. and retailer MINISO Group Holding Ltd. completed dual listings in Hong Kong. Meanwhile, e-commerce giant Alibaba Group Holding Ltd., restaurant operator Yum China Holdings Inc. and Noah announced plans to convert secondary listings to primary listings.
The IPO pipeline remained healthy even as the exchange operator warned of the impact from the fragile market sentiment, with 144 companies, including three special-purpose acquisition companies, waiting in the wings to list on the bourse as of Sept. 30.
"The early signs of momentum in the IPO market are encouraging and we will continue to monitor appetite for listings," Aguzin said. "Our pipeline continues to be robust, which is good news for when that confidence returns."
The CEO also said the exchange operator is still building out its connectivity business with mainland Chinese bourses for the long term. The connect initiatives are mutual access programs for investors in Hong Kong and mainland China to access stocks, bonds and recently added swaps in both markets. Improvements have also been made in the trading gateways to improve latency, as well as additions to the trading calendar for when both Hong Kong and mainland Chinese markets are open.
