HKEX warns coronavirus epidemic poses challenges after posting record net profit for second straight year

Enoch Yiu

Hong Kong Exchanges and Clearing warned that this could be a challenging year as the coronavirus outbreak and other macroeconomic factors continue to adversely affect global markets after it reported record profit for a second straight year.

“The outbreak of the virus brings a lot uncertainties as we do not know how long it will last and how far it will spread,” said Charles Li Xiaojia, chief executive of the stock exchange operator in a telephone conference on Wednesday afternoon.

Li hosted a teleconference instead of a conventional press conference in view of the Covid-19 epidemic, which has infected more than 80,000 people worldwide.

“The outbreak has affected the market and led to a slowdown of IPO activities. In January, we had 22 IPOs but only two after the Lunar New Year,” he said. “However, since many IPOs will happen in the second half of the year, it will be too early to say how the virus will affect the whole year’s performance in the IPO market.”

The outbreak will not affect HKEX’s expansion plans under a three-year strategy it launched last year, as the bourse continues to eye mergers and acquisition opportunities after the failed bid to buy the London Stock Exchange last year.

“We will continue to expand our international footprint. If there is a good opportunity, we will look into it,” he said.

He said the exchange continues to work with the mainland regulator to add companies whose shares are a secondary listing into stock connect schemes. “It is more a question of when it will happen. We will be able to reach a consensus in future,” he said.

The operator of the third largest stock market in Asia posted a net profit of HK$9.39 billion (US$1.21 billion), an increase of 1 per cent from HK$9.31 billion in 2018, on the back of a slew of new listings and higher turnover from the stock connect scheme, according to a stock exchange filing on Wednesday. However, the profit was slightly below the consensus forecast of 2 per cent growth according to analysts polled by Bloomberg.

HKEX chairwoman Laura Cha Shih May-lung warned of challenges ahead because of the outbreak.

“Global stock markets in early 2020 have been adversely affected by concerns over the Covid-19 outbreak and this, together with the ongoing Sino-US trade tensions, the upcoming US presidential election and the impact of Brexit, will undoubtedly shape the performance of capital markets in 2020,” she said in a statement.

Laura Cha Shih May-lung, chairwoman of Hong Kong Exchanges and Clearing, has warned of challenges ahead. Photo: Jonathan Wong

New listings gained momentum in the fourth quarter last year, with the US-listed e-commerce giant Alibaba Group Holding’s US$12.9 billion secondary offering in November. This allowed the Hong Kong stock exchange to retain the No 1 ranking as the world’s largest IPO market. Alibaba owns the South China Morning Post.

HKEX shares fell 0.8 per cent to close at HK$259.8 on Wednesday after the results were announced during the lunch break.

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“2019 was a good year for HKEX,” Li said. “Despite a challenging political and economic backdrop, we are reporting record revenue and other income, and profit, for the second consecutive financial year.”

He said the record profit was a result of “very strong stock connect revenue, a buoyant IPO market and good returns from investments offset macro-driven softness in trading volumes in the cash and derivatives markets”.

The company said it would pay a second interim dividend of HK$2.99 per share, bringing its full-year dividend to HK$6.71, the same as a year earlier.

Charles Li Xiaojia, CEO of Hong Kong Exchanges and Clearing Limited, will host a teleconference instead of a press conference because of the Covid-19 epidemic. Photo: Winson Wong

Jeffrey Chan Lap-tak, founding partner of Oriental Patron Financial Group, said the outbreak may lead to a slowdown of new listings, but it will not hurt HKEX’s full-year profitability.

“After the outbreak is over, the number of new listings will increase in the second half of this year,” Chan said, adding that US-listed technology companies were also eyeing listing in Hong Kong after Alibaba’s successful listing.

The exchange’s trading fee income dropped 12 per cent last year on the back of a 19 per cent decline in average daily turnover to HK$87.16 billion. This was offset by listing fees, which rose 6 per cent as a result of the strong IPO market.

Hong Kong saw 183 new listings last year that saw companies raise a total of HK$314.2 billion – the highest since 2010. Listing fees rose 6 per cent to HK$954 million last year.

Year to date, there have been 24 new IPOs that have raised HK$9.2 billion, compared with 21 IPOs in the same period last year.

Average daily turnover through the northbound stock connect, which refers to international investors trading Shanghai and Shenzhen shares via HKEX, doubled last year to a record 41.7 billion yuan.

Average daily turnover in January stood at HK$103.9 billion, an increase of 18 per cent from last year.

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