Hong Kong Exchanges and Clearing (HKEX), which operates Asia’s third-largest stock exchange, said earnings jumped last year by the most since 2020 on the back of a surge in investment income and derivatives trading as CEO Nicolas Aguzin ends his tenure after a tumultuous three years.
Net profit increased 18 per cent to HK$11.9 billion (US$1.52 billion), or HK$9.37 per share, according to its stock exchange filing on Thursday, the biggest increase since a 22 per cent jump in 2020. Analysts tracked by Bloomberg had forecast the firm to generate HK$11.9 billion for 2023. It was also the highest earnings since it earned HK$12.5 billion in 2021.
It proposed to pay HK$3.91 per share in second interim dividend, bringing the total to HK$8.41 for the year, versus HK$7.14 in 2022, and maintaining the payout at 90 per cent of earnings.
Earnings in the final three months of 2023 declined 13 per cent to HK$2.6 billion from HK$2.98 billion in the same quarter last year as average transactions of equity products shrank amid a market sell-off.
“HKEX delivered a strong set of 2023 full-year results, fuelled by notable growth in its derivatives, fixed-income and currencies business,” Aguzin said in the report. “Despite the persistent challenging global backdrop and softer cash market, we are pleased to be reporting our second-best revenue and other income, and profits, on record.”
HKEX booked almost HK$1.5 billion net investment gain in its portfolio of global stock and bond holdings last year, compared with a loss of HK$48 million a year earlier. Its annual results were also aided by higher fees from handling a higher volume of derivative transactions.
Futures contracts rose 4 per cent to 742,000 per day on average last year, while stock options contracts also climbed by 4 per cent to 612,000 per day, the report showed. The stock exchange also handled 40 billion yuan (US$5.6 billion) of transactions in yuan-denominated bonds by offshore investors through the Bond Connect scheme, a 24 per cent increase from a year earlier.
Aguzin joined HKEX in May 2021 from JPMorgan Chase’s private banking unit, taking over the helm soon after the Covid-19 pandemic outbreak ravaged businesses and sent the city’s economy into a recession. China’s faltering post-Covid recovery also fanned an exodus of foreign investors, shrinking trading volume.
HKEX’s shares slumped 46.5 per cent on his watch through Wednesday, erasing HK$270 billion from its market value. The benchmark Hang Seng Index slipped 42 per cent over the same period. The stock fell after the earninga report, losing 0.3 per cent to HK$244 at 1.20pm local time.
He decided in December against extending his contract and earlier this month opted to exit sooner than scheduled, citing a smooth transition in place.
Bonnie Chan Yiting, the co-chief operating officer, will take over the top post from Friday, while Wilfred Yiu Ka-yan, the current co-chief operating officer, will become her deputy.
HKEX introduced many trading products including futures on MSCI A Shares Index and exchange-traded funds under Aguzin’s watch. The attempts at diversification helped mitigate a broad slump in Chinese stocks, given that mainland companies account for aobut 50 per cent of the listings and 80 per cent of the market capitalisaton.
Daily turnover in stocks tumbled 16 per cent HK$105 billion in 2023, clipping HKEX’s fee income by 18 per cent, the company said in the filing. Proceeds arising from stock offerings more than halved to a 20-year low of US$5.9 billion based on Reffinitiv data, as HKEX’s fees from the business fell by 8 per cent.
Financial Secretary Paul Chan Mo-po in his Budget speech on Wednesday said the stock exchange and securities market regulators will roll out new measures to boost market activity. China’s state-run funds have also intervened to stem a loss of confidence, while the market regulators curbed disruptive trading by hedge funds.
“In recent times, a series of measures introduced by the mainland have actively stimulated the capital market, which is expected to have a positive impact on the Hong Kong stock market as well,” said Kenny Ng Lai-yin, a strategist at Everbright Securities International.
Besides, Beijing has sharpened its focus on financial integration in the Greater Bay Area by expanding the scope of the Wealth Management Connect scheme. Hong Kong also resumed an investment migration scheme to attract fresh investment in the city’s capital market.