Hong Kong Exchanges and Clearing (HKEX), the city’s stock exchange operator, reported better-than-expected first-quarter earnings, as investment income and surging cross-border trading of mainland Chinese shares boosted revenue.
The operator of Asia’s third-largest stock market reported on Wednesday a 2 per cent rise in net profit to HK$2.6 billion (US$332 million) for the January-to-March quarter from the same period last year, beating the market consensus estimate of a 6 per cent decline, according to analysts polled by Bloomberg.
“It’s a decent result,” said Wong Chi-man, head of research at Hong Kong-based brokerage China Galaxy International Financial Holdings.
“It has a high base of turnover volume in the first half of last year, which is a negative factor to its earnings. But net profit still grew 2 per cent even though average daily turnover declined by 30 per cent,” Wong said.
Revenue rose 3 per cent to HK$4.3 billion, driven by a record income of HK$232 million from the cross-border Stock Connect programme, which allows mainland Chinese and Hong Kong investors to trade in each other’s market, according to the HKEX.
The turnover of northbound trading through the Connect climbed to its highest ever quarterly level for the three month ended in March, reaching a total of 75 billion yuan (US$11 billion) on March 5, HKEX said in the statement.
Investment income also climbed by 27 per cent to HK$372 million, supported by a strong rally in Hong Kong’s stock market. It helped offset a 31 per cent plunge in trading and clearing fees, a result of lower market turnover.
“HKEX had a good start to 2019 despite a more challenging macro environment driving year-on-year softness in cash market volumes,” chief executive Charles Li Xiaojia said in a statement.
The surge in foreign trading was prompted by global index compiler MSCI’s decision in February to increase the weighting of China’s A shares in its global indices starting from May.
The announcement, together with a slew of economic stimulus policies rolled out by the Chinese government, set off a powerful rally in the Chinese and Hong Kong markets.
The Shanghai Composite Index advanced 24 per cent in the first quarter, while the Hang Seng Index gained 12 per cent during the period.
The upbeat earnings came on the heels of a record full-year profit in 2018 for the Hong Kong exchange, driven by surging fees from several blockbuster initial public offerings (IPOs), such as the US$6.9 billion listing of China Tower, the world’s largest mobile telecom tower operator, in August.
HKEX’s net profit jumped by 26 per cent to HK$9.3 billion (US$1.18 billion) in 2018 from a year earlier.
The exchange published a three-year strategic plan in February, which envisions cutting-edge technology such as blockchain and cloud computing to attract companies from China to list on the bourse.
Shares of the bourse operator fell 0.3 per cent to HK$264.4 by the midday close ahead of the earnings announcement.
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