Hang Seng Index

HKEx tipped to post robust gains amid surge in trading

PUBLISHED : Wednesday, 16 August, 2006, 12:00am
UPDATED : Wednesday, 16 August, 2006, 12:00am

Hong Kong Exchanges and Clearing is expected to report robust earnings today, with some brokers forecasting an 83 per cent surge in net profit, on the back of active stock trading and increased listings of warrants and mainland companies.

JP Morgan expected a first-half net profit increase of 83 per cent year on year to HK$1.04 billion, Christfund Securities estimated at least 38 per cent growth while Tung Tai Securities' forecast was 40 per cent.

The stock exchange, whose stock will be included in the Hang Seng Index from September 11, draws most of its income from trading fees paid by investors, listing fees paid by the companies, information sales to vendors plus investment income on its reserves.

'The market turnover has been strong and the many warrants and mainland companies' new listings mean the exchange will receive more trading fee and listing fee income,' Christopher Cheung Wah-fung, chairman of Christfund Securities, said.

Daily average market turnover surged by 93 per cent to HK$32.39 billion in the first half from HK$18.21 billion a year ago.

Strong trading in stocks and derivatives boosted the stock exchange's first-quarter net profit 95 per cent year on year to a quarterly record of HK$478.83 million.

The exchange also benefited from Hong Kong's growing warrants markets, which is the world's largest, and the listing of major mainland corporates such as Bank of China in the first half.

Credit Suisse said the first-half market turnover was unusually high and likely not to be sustainable. It estimated the market turnover and exchange earnings to drop by about 12 per cent in the second half.

'The most important driver to HKEx's earnings growth is turnover. We believe the market is too optimistic on long-term turnover growth,' a Credit Suisse report said.