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UPDATE 2-HKEx books record Q2 but China turmoil clouds outlook, may delay Shenzhen link
August 12, 2015 / 4:42 AM / 2 years ago

UPDATE 2-HKEx books record Q2 but China turmoil clouds outlook, may delay Shenzhen link

* Net profit HK$2.5 bln vs HK$2.9 bln analyst view

* Earnings boosted by Shanghai stock connect

* Shares down 4 pct vs benchmark’s 2 pct fall

* China market events could delay Shenzhen link -CEO (Recasts, adds CEO comment, updates share price)

By Michelle Price and Lawrence White

HONG KONG, Aug 12 (Reuters) - Hong Kong Exchanges & Clearing Ltd (HKEx) said a stock trading link with its Shanghai counterpart helped it to record quarterly profit, but that market turmoil in China could turn investors off mainland shares and delay a link with Shenzhen.

Net profit more than doubled to HK$2.52 billion ($324.95 million) in April-June as trading volume received a boost from HKEx’s exclusive Stock Connect with Shanghai - allowing foreign investors to buy Chinese shares via Hong Kong - while excitement over booming China stocks pushed up Hong Kong-listed securities.

But a stock market crash in China has dampened interest in mainland shares, sending trading volume down in Hong Kong and throwing doubt on whether the world’s largest listed stock market operator can repeat its bumper second-quarter results.

“Looking into the second half, a lot of challenges changes have taken place... and we’ll be looking at their implications for our market,” HKEx Chief Executive Charles Li said at a media briefing after the company announced earnings.

China’s market turmoil could also delay Chinese regulatory approval for a trading link with the Shenzhen Stock Exchange, Li said. HKEx would nonetheless introduce systems for the link to brokers in August or September, he said.

HKEx’s trading link with the Shanghai Stock Exchange began in November. It took hold in April during a six-month rally on the mainland when renewed interest in Chinese shares pushed HKEx trading volume to a record daily high of nearly HK$300 billion.

The mainland rally also stimulated interest in Hong Kong-listed shares, index futures, options, warrants and exchange-traded funds, further pushing up HKEx’s earnings.

“These results capture the excitement around China stocks in Q2,” said analyst Arjan van Veen at Credit Suisse in Hong Kong.

HKEx’s fortunes reversed from mid-June when mainland shares started to decline. By June-end, daily trading volume in Hong Kong had fallen to around HK$200 billion, Reuters data showed.

HKEx’s own shares hit a lifetime peak in late May only to drop 33 percent to date. The stock ended down 4.2 percent on Wednesday versus the broader market’s 2.4 percent fall.

“In the long run there’s huge potential for HKEx from its various strategic initiatives with China, but in the short term they face a challenge because trading fees are their main source of revenue and volumes are down sharply,” said van Veen. ($1 = 7.7550 Hong Kong dollars) (Editing by Christopher Cushing)

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