After six straight quarters of sliding profits, the end of 2022 likely brought some relief to Hong Kong Exchanges & Clearing Ltd.
(Bloomberg) — After six straight quarters of sliding profits, the end of 2022 likely brought some relief to Hong Kong Exchanges & Clearing Ltd.
The operator of Hong Kong’s stock exchange is estimated to report a 9% increase in profit to HK$2.92 billion in the fourth quarter from a year earlier, according to a Bloomberg survey of analysts. For all of 2022, net income is seen down 21%.
Activity picked up at the end of last year after a prolonged drought of listings and slumping trading as China abruptly ended its Covid Zero policies. That, coupled with rising interest rates, likely helped the firm’s investment portfolio.
While IPOs and trading were down in the fourth quarter from a year earlier, they picked up pace from the first nine months of the year and are poised to accelerate further this year as sentiment improves and China’s securities regulator signaled rules on local companies seeking initial public offerings overseas may be less strict than feared.
We expect first-half of 2023 to “record a strong year-on-year growth in both number and size of IPO deals,” Credit Suisse Group AG analysts led by Charles Zhou said in a Feb. 8. note.
Average daily turnover on the stock market is up 4% from the start of last year and IPOs year-to-date have outnumbered 2022, though the deal sizes are 60% smaller. The exchange also plans to lower listing threshold for advanced technology companies in a bet to lure more deals.
HK Proposes Lower Revenue Threshold for Cutting-Edge Tech IPOs
Sharnie Wong, a senior analyst at Bloomberg Intelligence, predicts IPOs in Hong Kong could triple this year, topping $40 billion.
The exchange is even trying to lure oil giant Saudi Aramco to list in the financial hub.
Even so, Morgan Stanley expects HKEX to report “sticky” costs to hit HK$1.77 billion in the fourth quarter, according to analysts led by Richard Xu. Investment income is seen as the main driver of revenue in last three months of 2022, Xu’s team said.
The 12-month price target on the stock stands at HK$390.36, a 19% upside. The shares are down 2.9% this year.
What Bloomberg Intelligence says:
“Trading activity should be fueled by the homecoming of US-listed Chinese firms, ongoing conversion of American depositary receipts to Hong Kong shares and the Stock Connect’s wider scope since 2022. Chinese authorities opened the door for foreign companies to participate in the southbound link, but still need to clarify overseas listing rules. Derivatives income could get a boost from China equity index and yuan currency futures products.” — BI Senior Industry Analyst Sharnie Wong
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