A drop of up to 50 per cent in the Hong Kong Exchanges and Clearing's (HKEx) interim profit is expected when it reports on Wednesday. Analysts believed the exchange would be hard hit by reduced turnover and the low interest-rate environment. Profit expectations range from HK$285 million to HK$388 million for the half to June. HKEx, the holding company of the Hong Kong stock exchange, futures exchange and clearing house, last year reported a 160 per cent year-on-year interim profit rise to HK$554.39 million. It was driven by strong market turnover and the dotcom rally. But it will likely to be a different story on Wednesday. Transaction levies paid by investors when they trade stocks - the major source of income for the HKEx - are under pressure. Revenue from bank interest paid on deposits held by the HKEx for futures trading investors was also expected to be down. Worries about the HKEx's interim results squeezed its stock price last week. It finished at HK$9.65 on Friday, against a peak of HK$19 in February. Capital Group is picking a 49 per cent year-on-year net profit decline, to HK$285 million. Average daily turnover in the first half was HK$9.2 billion, representing a fall of 37 per cent, year on year. Capital Group said the reduced market turnover would cut levy income and clearing business. Tung Tai Securities associate director Kenny Tang Sing-hing estimated interim profit at the HKEx would drop 30 per cent to HK$388 million. At the same time, he pointed out, the exchange relied on bank interest income as investors trading futures contracts would need to place deposits with the exchange. In turn, the exchange would put these funds on deposit in banks to generate interest income. Mr Tang said this year's series of interest-rate cuts had seen the rate drop to only 1.5 per cent. This compared with more than 4 per cent offered at this time last year. The end result was obviously a severe reduction in interest income for the HKEx. 'Stocks and futures trading are the major business lines of the HKEx - apart from them the exchange does not have other income sources,' Mr Tang said. As a result, a drop of market turnover definitely has an impact on the profit of the exchange.' Standard Capital Securities director Louis Tse Ming-kwong anticipated the HKEx would report a profit drop of 30 per cent for the first half. He said there were not so many companies listing this year, which reduced investor interest. Several new products introduced by the exchange in May, including the two exchange traded funds and MSCI China Free Index Futures, had failed to generate significant trading activity. Hung Sing Securities director Gilbert Cheung Yik-cho estimated the HKEx interim result would decline at least 30 per cent, in line with the market turnover decline. He expected worse to come in the second half because no big company would be listing on the market and the investment sentiment would continue to be gloomy due to concerns about the economic slowdown in the United States. 'With the global stock market down, we are unlikely to see a quick recovery in the second half,' Mr Cheung said and for this reason expected the full-year result to come in at half of last year's figure. ING Barings also lowered its full-year profit forecast, expecting a 23 per cent drop, to HK$676 million, against last year's HK$879 million. Credit Suisse First Boston was picking a smaller decline, expecting full-year profit to be down 20 per cent, to HK$701 million. It said a proposal to extend trading to 11 hours a day from four would not help to increase its bottom-line as extended trading hours would not generate a significant turnover boost.