Extreme investor caution drives down HKEx profit by 14%

Hong Kong Exchanges & Clearing Ltd reported a 14% year-on-year drop in in net income to HK$2.22 billion in the first half.

Second quarter profits fell 21%, due to a plunge in market turnover and listing fees. Net income in the quarter ended June 30 slid to HK$1.07 billion from HK$1.35 billion a year earlier. Revenue and other income dropped 8% to HK$1.9 billion.

The world’s second-biggest bourse by market value said interim results showed a gross income of $3.77 billion, down 5% year-on-year. On the other hand, operating expenses rose 13% to $1.032 billion. Profit before taxation was $2.63 billion.

HKEx Chairman Chow Chung-kong said global economic unrest and the European sovereign debt crisis continues to be a key focus of the financial markets. The lower risk appetite of investors drove market activity levels down in the first half of 2012.

“Amid the uncertain and challenging market environment, we are mindful of the obligations we have towards the investing public and our shareholders in exploring every available opportunity.”

HKEx Director and Chief Executive Charles Li forecast the market uncertainty brought by the global economic slowdown and Europe’s sovereign debt problems will linger, and said low market turnover is putting pressure on HKEx's short-term profitability.

In the six months through June, the daily average value of shares traded fell 23% to HK$56.7 billion from HK$73.6 billion in the same period last year. Average turnover fell 29% in the three months through June 30.

Listing fees fell to HK$218 million in the second quarter, compared with HK$221 million a year earlier and HK$244 million last quarter, according to Bloomberg calculations. First-half profit slid 14 percent to HK$2.22 billion.

Operating expenses rose 13% from a year earlier to HK$1.03 billion during the first-half amid higher staff costs and legal and professional fees, according to HKEx. It incurred HK$110 million of expenses, mainly on professional fees, in relation to the acquisition of the London Metal Exchange.

At the end of June 1,342 and 177 companies were listed on the Main Board and Growth Enterprise Market, with an average daily turnover value of HK$56.5 billion and HK$156.6 million, a decline of 14% and 3%.

The average daily turnover value on the Stock Exchange was HK$56.7 billion, 15% lower than the same period last year. The average daily number of derivatives contracts traded on the Futures Exchange grew 6% to 265,609. The stock options contracts traded on the Stock Exchange dropped 20% to 231,856.