Hong Kong's stock market operator is braced for further turbulence after muted trading and a sluggish equity fundraising market dragged on income in the first half of 2022.
Hong Kong Exchanges and Clearing Ltd. reported a 27% year-over-year drop in its daily average turnover from January to June. This was attributed to a fragile global macroeconomic backdrop, geopolitical tensions, market volatility and the lingering effects of the COVID-19 pandemic. Average trading on its platform, a key source of revenue, was at HK$138.3 billion per day in the first half of 2022, down from HK$188.2 billion in the same period of 2021, HKEX said in its earnings statement on Aug. 17.
"It is unlikely to see a significant rebound in Hong Kong's trading activities in 2022 due to the turn of the global monetary tide and the stubbornly poor sentiment, which is dampened by uncertainties over real estate developers, regulations on internet platforms [in mainland China], and geopolitical risks," said Gary Ng, senior economist for the Asia-Pacific at Natixis.
Average daily turnover slipped further to HK$88 billion in August, its lowest since December 2019, Ng said.
Still, CEO Nicolas Aguzin said the exchange operator remains "resolutely focused" on building its business for the long-term.
HKEX reported a 18% year-over-year decline in first-half revenue to HK$8.94 billion, driven by an 11% drop in core business revenue due to lower trading volumes. It also recorded an investment loss of HK$378 million. Net profit for the six months declined 27% to HK$4.84 billion.
Net profit fell 22% year over year for the second quarter, the fifth straight drop in quarterly profit, as relatively muted listing and trading activities continue to weigh on earnings, Huatai Securities said in an Aug. 17 research note. Huatai expects that "a strong pipeline of firms delisting in the U.S. would be the next catalyst" to boost the number of listings.
The exchange hosted 27 new listings in the first six months of the year, including two special purpose acquisition companies, raising an aggregate of HK$19.7 billion in initial public offering proceeds. That represents 91% drop from same period in 2021.
However, the IPO pipeline remains strong, the exchange said, with 189 active applications, including 11 SPAC applications, as of June 30.
Alibaba Group Holding Ltd. and Bilibili Inc. both announced their plans for dual primary listing by the end of 2022, which "underpins Hong Kong's role as a preferred and attractive market for homecoming issuers," the exchange said.
Beijing-based China Tourism Group Duty Free Corporation Ltd., the world's largest travel retailer, is expected to surpass Tianqi Lithium Corp. to become the largest IPO in Hong Kong in 2022, with potential fundraising of HK$17 billion. It is scheduled to commence trading Aug. 25.
With slow IPO activities the first half inevitably weighing on the rest of the year and with volatility in capital markets, PwC has estimated that the total funds raised in Hong Kong in 2022 to reach HK$180-200 billion, a drop of at least 44% from last year.
HKEX's revenue could decline by 8% to HK$17.95 billion in 2022 from the year before and recover 10% in 2023, Ottawa-based CFRA Equity Research estimated, adding that the exchange will likely stay the preferred capital-raising venue for mainland Chinese companies.
As of Aug. 16, US$1 was equivalent to HK$7.84.