Market daily turnover declines by 16%, yet HKEX's net profit still sees a signif

In 2023, despite the continued sluggish performance of the Hong Kong stock market and the weakness of new listings, the Hong Kong Exchanges and Clearing Limited (HKEX) achieved a counter-trend increase in performance.

The full-year financial report disclosed on February 29th showed that in 2023, HKEX's total revenue rose by 11% year-on-year to 20.5 billion Hong Kong dollars, and the net profit increased by 18% year-on-year to 11.9 billion Hong Kong dollars, both reaching the second-highest in history. After the financial report was announced, the stock price of HKEX fluctuated and fell in the afternoon, closing at 242.8 Hong Kong dollars per share, down 0.82%.

Compared with the performance of HKEX, the transaction volume of the Hong Kong stock market during the same period has significantly declined. Data shows that in 2023, the average daily transaction amount of the Hong Kong securities market was 105 billion Hong Kong dollars, a year-on-year decrease of 16%.

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Under the shrinkage of daily transaction volume, HKEX's revenue could still increase mainly due to investment income. In 2023, HKEX's net investment income was 1.487 billion Hong Kong dollars, while in 2022, it suffered a loss of 48 million Hong Kong dollars. Among them, benefiting from the increase in interest rates on Hong Kong dollar and US dollar deposits, HKEX's net investment income from the margin and settlement fund was 3.472 billion Hong Kong dollars, setting a new high, with an investment net return as high as 1.64%. Cash and bank deposits (including foreign exchange swaps) became the "main force" contributing to the income, generating 3.178 billion Hong Kong dollars of investment income in 2023.

However, if the above investment income and other income are excluded, HKEX's revenue from traditional businesses such as transaction system usage fees, settlement and clearing fees, and listing fees was only 7.932 billion Hong Kong dollars, a year-on-year decrease of 11%.

The most important reason is the continued sluggish performance of the Hong Kong stock market, with gradually shrinking transactions. According to HKEX data, in 2023, the average daily transaction amount of the Hong Kong securities market was 105 billion Hong Kong dollars, a year-on-year decrease of 16%. The related transaction fees, settlement and clearing fees also declined significantly. In 2023, the revenue from transaction fees and transaction system usage fees was 2.769 billion Hong Kong dollars, a year-on-year decrease of 18%. The settlement and clearing fees were 2.943 billion Hong Kong dollars, a year-on-year decrease of 12%.

At the same time, the long-term sluggish IPO market is also an important reason for the reduction of traditional business income. In 2023, a total of 73 companies were listed on the Hong Kong stock market, a year-on-year decrease of 19%, with a total fundraising amount of 46.3 billion Hong Kong dollars, a year-on-year decrease of 56%. HKEX's listing fees also decreased by 8% year-on-year to 908 million Hong Kong dollars.

Although the overall daily transaction volume continues to decline, the daily transaction volume of some new products has increased against the trend. "The highlight of this year is the group's achievements in product diversification and optimizing market microstructure," said HKEX Group Chief Executive Officer Niu Guosheng. During the year, the Hong Kong Exchange's stock derivative products, renminbi currency futures, over-the-counter settlement, and exchange-traded products (ETP) business all set new daily transaction volume records.Among them, the Exchange Traded Products (ETPs, including ETFs and leveraged and inverse products) on the Hong Kong Stock Exchange (HKEX) are one of the fastest-growing businesses under the HKEX umbrella, with their trading volumes consistently and robustly increasing over the past few years. In 2023, the average daily turnover of ETPs reached a record high of 14 billion Hong Kong dollars, marking a 17% increase from 2022. A total of 16 new ETPs were listed in 2023, including several thematic ETFs, fixed income and money market ETFs, as well as the first ETF in Asia to track the largest global scale of Saudi Arabian stocks.

On the same day that HKEX announced its financial report, the first batch of covered call option ETFs was also listed in Hong Kong. A covered call option is a strategy that involves selling call options on some of its held assets. The principle is to invest in the related assets while obtaining additional income through the sale of call options. With this strategy, investors can not only profit from the potential appreciation of the related assets to a limited extent but also receive cushioning protection during market fluctuations.

In addition to accelerating the expansion of new business segments, HKEX is actively seeking change in the new year, with several measures to alleviate the liquidity of the Hong Kong stock market being considered. The Financial Secretary of the Hong Kong Special Administrative Region Government, Paul Chan Mo-po, stated in a recent budget case that HKEX has sought market opinions on establishing a stock repurchase mechanism and maintaining market operations under adverse weather conditions, with the goal of implementing them by mid-2024. Furthermore, this year, the Hong Kong Securities and Futures Commission and HKEX are exploring a series of measures to further enhance market efficiency and liquidity, such as studying the optimization of the price discovery process for initial public offerings and reviewing the public float requirements for listed companies.

This year also marks a transition period for HKEX, with reforms in the Hong Kong stock market highly anticipated. As HKEX announces its financial report today, it is also a critical time for the change of leadership at HKEX. Nicolas Aguzin's term is coming to an end, and tomorrow (March 1st), HKEX will officially welcome its new leader, Arthur Chan. Several industry insiders have expressed that Arthur Chan has experienced the golden age of Hong Kong IPOs, is familiar with both domestic and international markets, and also has a positive attitude towards reform, with the expectation of introducing more reform measures in the future.