HONG KONG—A bull market in Chinese stocks helped propel trading
activity on Hong Kong's stock exchange to the highest level in its
history during the first half of the year, boosting its bottom line
as its metals trading business had a slight decrease in
turnover.
Profits at Hong Kong Exchanges & Clearing Ltd., the city's
exchange operator, rose 73% to 4.1 billion Hong Kong dollars
(US$528.5 million) in the first half after trading fees jumped,
allowing it to increase its dividend by more than two-thirds.
HKEx, which vies with CME Group Inc. as the world's largest
exchange operator, is a gateway to offshore-listed Chinese shares
for overseas institutional investors and has developed a channel to
the Shanghai market in the past year.
The exchange witnessed a surge in volumes beginning in April,
when Chinese capital flooded into the city's equity markets making
use of Stock Connect, a trading link allowing brokers in Hong Kong
to buy shares in Shanghai and vice versa. The resulting jump in
trading fees helped boost revenue 48.3% to HK$6.85 billion. The
earnings missed analysts' estimates, however, with increasing staff
costs driving operating expenses higher.
Meanwhile, the exchange operator reported a 3% decline in daily
turnover at LME, its industrial metals trading arm.
The company said the outlook for the remainder of the year was
uncertain, after a crash in Chinese markets in July that has sapped
enthusiasm for Shanghai stocks. Volatility from China has also
spilled over into commodity markets.
"With multiple and complex challenges facing the world economy,
the performance of the global financial markets, with Hong Kong
being no exception, is subject to uncertainties in the second half
of the year," said C.K. Chow, the exchange's chairman in a
statement. "The group will stay vigilant and strive to enhance its
competitiveness further by introducing new products to meet market
needs.
The company's shares were recently down 3.8% to HK$207.80 after
the release of earnings, underperforming the wider Hang Seng Index,
which fell 2.1%.
The daily value of stock trading in Hong Kong has dwindled since
July, as the rally in Chinese shares turned to dust. The Shanghai
Composite, which had gained 151% in the year through June, has
subsequently fallen 24.3%—with the slide only halted by widespread
intervention by Chinese authorities to quell the panic in July.
Hundreds of applications for temporary trading suspensions by
companies have spooked investors who feared being unable to
withdraw their capital. July brought the first monthly outflows via
Stock Connect since its launch in November, casting a pall over
plans to expand the trading link to Shenzhen.
The exchange's statement gave no update on a possible launch
date for the Shenzhen Stock Connect.
HKEx has hoped that a further boost to volumes would come from
offering global investors access to the smaller Shenzhen market,
home to many listings of companies in China's new economy,
including those in the technology, pharmaceutical and new energy
industries. However, the decision to launch ultimately rests in the
hands of Chinese regulators.
"The exchange can only do what they can do, in terms of laying
infrastructure and improving the products," said Michael Wu, an
equity analyst at Morningstar.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com
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