Published On: Sun, May 15th, 2011

Hong Kong Exchanges & Clearing 1Q Net Profit Up

Hong Kong Exchanges & Clearing Ltd. (0388.HK) Wednesday reiterated its plan to capitalize on its links to China as it reported a 10% rise in first-quarter net profit from increased trading activity on the city’s stock exchange.

Though admitting cross-border merger plans from major exchanges and the emergence of alternative trading venues “have placed HKEx in a rapidly changing and increasingly competitive landscape,” Hong Kong’s monopoly bourse operator said it would continue building on its role as “China’s international financial center,” including establishing the city as an offshore yuan center.

Hong Kong’s stock exchange, the most popular global venue for new share offerings the past two years, has beaten rival exchanges in attracting issuers largely thanks to its ties to China. So far this year HKEx sits in sixth place in terms of money raised through new listings, according to data provider Dealogic, which leaves it trailing bourses in New York, China and Singapore.

But a host of companies such as Swiss commodities trader Glencore International AG, U.S. luggage maker Samsonite, Italian fashion company Prada SpA and casino operator MGM China Holdings Ltd. have plans to list in Hong Kong, which is vying to attract international issuers such as resource and luxury brand companies.

HKEx has insisted it’s not in talks with any exchanges to merge following a recent spate of deal-making among the world’s largest exchanges. The London Stock Exchange Group PLC and Canada’s TMX Group Inc have agreed to tie-up and the New York Stock Exchange and Deutsche Borse AG plan to complete a deal to merge by the end of the year. Meanwhile, Nasdaq OMX Group Inc. and IntercontinentalExchange Inc. last week outlined a hostile offer to take over NYSE Euronext. Last month Australia blocked Singapore Exchange Ltd.’s plan to take over ASX Ltd.

HKEx has thus far stayed out of the merger frenzy and instead said it was focusing on strengthening ties with China’s markets. Last year, it said it would allow locally-listed Chinese companies to prepare their financial statements using Chinese accounting standards, and mainland auditors to vet them. It also announced a plan to extend trading hours in Hong Kong to better align them with Chinese markets.

The exchange operator has said increasing the overlap with China is crucial because more than 70% of the trading volume on the local stock market is in China-related securities and the number of companies listed in both China and Hong Kong is likely to increase given the city’s role as China’s offshore yuan center.
HKEx plans to launch a yuan equity trading support facility in the second half of the year to ensure long-term growth and the stability of a yuan stock market, which “is subject to the challenge of sufficient and reliable (yuan) liquidity in Hong Kong,” it said Wednesday.

Hui Xian Real Estate Investment Trust, controlled by tycoon Li Ka-Shing, debuted April 29 as Hong Kong’s first yuan-denominated initial public offering. But it fell sharply on its first day of trade as retail investors likely saw Hui Xian as a steady income-generating security rather than a quick money-making play, and on concerns that the market wouldn’t have access to enough yuan to allow significant trading in the REIT.

HKEx Chief Executive Charles Li said at the time that while the market response to the Hui Xian IPO was outside the bourse’s control, its successful listing was a milestone for the internationalization of the yuan.

The stock exchange operator said net profit for the three months ended March 31 was HK$1.24 billion, up from HK$1.13 billion in the same period last year.
The company, which makes money from fees and tariffs related to securities, options and derivatives trading, as well as listing fees, investment income and clearing and settlement fees, said revenue rose 11% to HK$1.91 billion from HK$1.71 billion.

Average daily turnover on the stock exchange during the first quarter jumped 17% to HK$75.9 billion from HK$64.8 billion a year earlier.

-By Kate O’Keeffe, Dow Jones Newswires

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