Hong Kong Stock Exchange’s Profit Drops on Weaker Trading

(Beijing) — The Hong Kong Stock Exchange operator reported a 27% drop in profits in 2016 as fees earned from stock and metals trading slumped as political and economic uncertainty around the world led to volatility on global financial markets.

Net profit attributable to shareholders declined to HK$5.77 billion ($747.4 million), or HK$4.76 per share, Hong Kong Exchanges and Clearing Ltd. (HKEX) said on Monday in a statement announcing its annual results. Revenue and other income fell by 17% to HK$11.1 billion.

Average daily trading volume on the Hong Kong bourse fell by 37% to HK$66.9 billion last year from a record in 2015, according to the company, which earns most of its income from fees charged on trading and clearing of products traded on its exchanges. Trading in the Hong Kong derivatives market improved, with total futures turnover rising by 14% to 84.1 million contracts, but trading volume on the London Metal Exchange fell by 8% to 156.5 million lots.

“The global financial markets were volatile and overshadowed by political and economic uncertainties arising from the U.K. vote to leave the EU and the U.S. presidential election,” Chow Chung Kong, the bourse’s chairman, said in the statement. “At home, there were concerns that mainland China’s economy was slowing down and that interest rates would rise in response to the U.S. interest rate hikes. All these contributed to cautious sentiment among investors, and created a challenging market environment for the group.”

The company expects the operating environment for financial markets to remain challenging this year. “Despite some encouraging signs of better growth prospects in the U.S. and Europe, many political and economic uncertainties remain,” he said.

The Hong Kong Stock Exchange remained the world’s largest IPO market last year, with 126 companies listing and raising a total of HK$195.3 billion, although the amount of money raised fell by 26% from 2015, the company said. Funds raised by existing listed companies slumped by 65% to HK$294.8 billion.

The company is working “very hard” to win a potential $100 billion listing by Saudi Arabia’s state oil company Aramco, which is expected to be the biggest IPO in history, CEO Charles Li said at a briefing in Hong Kong to discuss the results. Access to China’s capital markets, combined with the bourse’s location in Asia, gives the Hong Kong Stock Exchange strong appeal, Li said.

HKEX said it sees significant opportunities in expanding links with China; building on the Shanghai Connect and Shenzhen Connect programs, which allow residents of Hong Kong and China to invest in each other’s equity markets; and on the growing demand for yuan foreign-exchange products in offshore markets. It plans to offer new yuan currency options in the first quarter of 2017 and a yuan currency futures index later this year.

Contact reporter Chen Na (nachen@caixin.com)