With a big boost from its cross-border investment channel, Hong Kong Exchanges & Clearing Limited (HKEX) managed to report its best first-half profits on record. The bourse operator greatly profited from the influx of new foreign investments through its stock connect channel, while also benefiting from an increase in representation of Chinese A-shares by MSCI.
In its earnings report, HKEX reported revenues of $1.1 billion for the first half of the year. This was a 5 percent increase from the same period last year. The company reported an increase of 3 percent in its net profits to $700 billion, the highest amount the bourse has made since it was established in 2000.
While HKEX managed to hit its targets for the first half of the year, its second-quarter profits did miss initial analysts' estimates of a 9 percent growth. The company reported second-quarter profits of around $330 million, which was still a 5 percent increase from the same period last year.
The boost in revenues and profits were mainly due to the influx of international capital into Chinese stocks during the second quarter. The MSCI announced in February its planned three-stage implementation aimed at attracting foreign investments into different Stock Connect investment channels. The move boosted foreign investments into China by more than 39 percent.
MSCI increased its weighting of China A-shares from 5 percent to 20 percent through a three-stage process ending in November. Similarly, FTSE Russell in the UK announced plans to include China A-shares in its global benchmark index through a three-tranche process. The move should attract more international capital, especially from large passive investors.
HKEX's chief executive, Charles Li Xiaojia, mentioned in a statement that the company is still producing solid numbers despite the ongoing economic and geopolitical turmoil. The executive explained that despite the situation, Stock Connect revenues and strong initial public offerings (IPOs) have managed to compensate.
Average daily turnover for funds via the Hong Kong-Shanghai Connect increased to $3.33 billion in the first half, more than double the amount recorded last year. Around 84 companies had launched their IPOs in Hong Kong for the first half of the year, managed to raise a combined $9.16 billion.
This was a 39 percent increase from the amount raised over the same period last year. The figure officially makes Hong Kong the world's third-largest IPO destination. That number could have been much larger if it were not for three companies that backed out from their IPOs. One of those companies was Anheuser-Busch InBev's Budweiser Asia unit, which would have been the largest IPO globally this year.
