Hong Kong Exchange Profit Drops Most in Almost Three Years

(Bloomberg) -- Hong Kong’s stock exchange suffered its worst slide in profit in almost three years as the Asian financial hub is buffeted by social unrest and political tension between the U.S. and China.

Facing turmoil on multiple fronts, trading slid in the quarter and the number of stock listings was down more than a third in the first nine months compared with same period in 2018. Net income at Hong Kong Exchanges & Clearing Ltd. fell almost 10% to HK$2.21 billion ($282 million) in the three months through September from a year earlier, it said on Wednesday. That was the biggest drop since the last three months of 2016.

Rocked by almost five months of protests, Hong Kong’s economy slid into a recession in the third quarter in a contraction that exceeded even the most dire predictions. Also weighed down by a trade dispute between the U.S. and China, the city’s Financial Secretary Paul Chan warned last week that a full-year economic contraction is “very likely.”

Political and trade tensions, and the worsening global economic outlook, have delayed a potential $10 billion secondary listing from Alibaba Group Holding Ltd. in and cast a pall over tech listings, including that of Chinese artificial intelligence giant Megvii Technology Ltd.

The company’s revenue and other income declined 2.8% to HK$3.99 billion in the quarter, paced by a drop in trading and listing fees.

Average daily trading volume on the the world’s third-largest exchange by market slid 21% in the first nine months of 2019, according to the company.

Thin local trading was partially offset by a resilient cross-border turnover. Revenue from the link to Chinese markets, known as the Stock Connect, rose 45% to HK$758 million in the first nine months of 2019. The surge was induced by A shares further included by major index companies such as MSCI, FTSE Russell and S&P Dow Jones.

The decline comes after the exchange failed in an unsolicited 29.6 billion-pound ($36.4 billion) bid to buy the London Stock Exchange Plc in September. HKEX reported a HK$130 million cost relating to the bid. The London bourse argued in its rejection that its Hong Kong counterpart is too geographically concentrated, while its business is too heavily exposed to market transaction volume.

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