Hong Kong Exchanges & Clearing Ltd. expects China's economic rebound and a strong IPO pipeline to help carry its performance momentum into this year after posting a record for revenue in 2020.
The exchange operator, which gained from Hong Kong's role as the largest offshore Chinese yuan center in 2020, expects the internationalization of the yuan and the gradual opening-up of China to global investors to support its performance, interim CEO Calvin Tai said in a Feb. 24 earnings filing. This will be the third and final year for the exchange's strategic plan to be the global markets leader in the Asian time zone, he said.
The year may throw uncertainties. "However, the availability of a portfolio of vaccines, China's faster-than-expected economic rebound and a global commitment to far-reaching sustainability goals, all give cause for optimism," Tai said.
His comments came as the local market was jolted by a surprise announcement in the Hong Kong government's budget earlier in the day that the stamp duty on stock trades will be raised to 0.13% from the current 0.1%. The first such increase since 1993 caused the local Hang Seng Index to shed 3% at close. HKEX shares closed 8.8% lower on fears of a decline in trading volumes.
"We are disappointed but we understand why the government wants and needs to increase the stamp duty," Tai said. "The stamp duty raising will not change our cause...to maintain Hong Kong as the preferred capital raising, trading center, and risk management center," he said, adding that the exchange operator was not consulted on the proposal.
The market was caught by surprise, though we "shouldn't overreact" to the development, Tai said.
Meanwhile, new listings and a collaboration with Shenzhen and Shanghai stock exchanges that allows mainland and Hong Kong investors to trade in each other's markets will continue to drive revenue this year. In addition to Chinese companies listed in the U.S. seeking a secondary listing, Hong Kong exchange expects to attract American biotech companies to raise funds.
"We believe stock connect will continue to be a key revenue driver, as will the strong IPO pipeline with more new economy companies and homecoming secondary listings," CFO Vanessa Lau said in a Feb. 24 call with journalists.
The exchange helped 154 companies raise a combined HK$400.2 billion in IPO proceeds in 2020. That included JD.com Inc. raising HK$35 billion, and NetEase Inc. raising HK$24 billion in secondary listings on the Hong Kong exchange.
The exchange's revenue and other income was up 18% to HK$19.2 billion in 2020, helped by active trading volumes and a buoyant IPO market. Profit attributable to shareholders rose 23% on year to HK$11.51 billion. The board declared a full-year dividend of HK$8.17 per share.
However, some analysts expect fundraising in Hong Kong to cool later this year.
"Hong Kong's IPO market will still be active in the first half of 2021," Ringo Choi, Asia-Pacific IPO Leader at EY said in a Dec. 18, 2020, IPO outlook press conference. "But I emphasize the first half, because government support could delay the pandemic's impact on corporate earnings. If earnings are hurt, IPO valuations and thus investor confidence are likely take a hit too."
The Hong Kong Exchange invested 210 million yuan for a 7% stake in the newly-established Guangzhou Futures Exchange on Feb. 5. It will provide HKEX "with the opportunity to help and promote the development of China's derivatives market", the filing said.
The company also expects to welcome JP Morgan Chase & Co. banker Alejandro Nicolas Aguzin who was appointed its new CEO for a three-year term, effective May 24. The appointment is still pending regulatory approval.
As of Feb. 23, US$1 was equivalent to 6.47 Chinese yuan.
