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Hong Kong Stock Exchange Turns From Tough Year to Trading Boom

Wednesday 26th February 2020

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The Hong Kong stock exchange is closing its books on a tough 2019 as virus-fueled volatility boosts trading volumes to start the new year.

The exchange is estimated on Wednesday to report a 2% increase in net income for 2019, helped by a rise in initial public offerings as the bourse maintained its place as the world’s biggest IPO market. That allowed it to weather a 19% drop in trading -- typically its main source of revenue -- as the city was rocked by anti-government protests.

In early 2020, the tables have turned. Trading has boomed with investors rushing to adjust their portfolios to guard against the impact of the spreading coronavirus, while IPOs have all but come to a halt. Looking ahead, the bourse needs to cement its role as a bridge to China after a bid for the London Stock Exchange Group Plc failed and Alibaba Group Holding Ltd. was kept out of its trading link with mainland China exchanges.

“A surge in cash equities and derivatives trading activity due to heightened near-term market volatility, which boosts Hong Kong Exchanges’ revenue, should more than offset the impact of a weaker pipeline of IPOs,” said Sharnie Wong, a senior analyst at Bloomberg Intelligence.

Trading exceeded HK$100 billion on 16 out of 20 days after the Chinese New Year holiday, up by at least 15% from last year.

Markets are reeling from the deepening coronavirus crisis, with Hong Kong stocks trading at the lowest evaluations in 16 years, but investors are seeing an upside for Hong Kong Exchanges & Clearing Ltd. Its shares are up 3.5% so far this year, adding to a 12% gain in 2019.

The exchange typically derives the bulk of its revenue from trading fees and tariffs, while fees from IPOs were just above HK$100 million in both 2017 and 2018, though it generates millions more from other types of listings. The financial hub has played a key part in allowing Chinese investors access to selling and buying stocks, especially with Chinese authorities stepping in to limit selling earlier this month.


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