Falls in turnover and new listings caused by the war in Iraq and Sars are blamed for the sharp drop in first-quarter profits Falls in stock market turnover and the number of new listings caused by the effects of the war in Iraq and the Sars outbreak have seen Hong Kong Exchanges and Clearing report a 25 per cent decline in first-quarter profit. HKEx said yesterday it recorded a profit of HK$89 million for the first three months of the year, compared with HK$118 million in the corresponding period a year earlier. The exchange's shares fell yesterday afternoon after the poor result was announced, closing at HK$9.15, down 5.67 per cent. HKEx chairman Charles Lee Yeh-kwong said the profit fall was mainly due to a 14 per cent year-on-year drop in average daily turnover to HK$6.1 billion during the three months as the exchange relied on levy income and clearing fees on share transactions paid by investors. 'Market sentiment during the period was significantly affected by political and economic uncertainties, largely due to the war in Iraq and the onset of severe acute respiratory syndrome [Sars],' Mr Lee said. He said the exchange's future profit would be affected by a number of uncertainties. 'The prevailing economic weakness in the United States, Europe and Japan is still deterring investors from actively participating in the stock market,' Mr Lee said. 'Coupled with the outbreak of Sars and the poor economic performance domestically, activities on the stock market are likely to remain subdued in the foreseeable future, and HKEx's revenue will continue to come under pressure,' he said. The government's plan to hold a public consultation on whether to pass the frontline regulator role of HKEx to the Securities and Futures Commission (SFC) could also see the exchange lose listing fees. What is certain is that the exchange will need to pay HK$20 million annually to the SFC under the dual filing arrangement as the cost of the commission sharing the vetting work with the exchange on listed companies' announcements. The exchange's profit fall was also due to a 12 per cent decrease of listing fees, which stood at HK$79 million in the first three months compared with HK$90 million in the first quarter last year. The number of new listings on the main board fell 50 per cent, there was a 71 per cent drop in new listings on the Growth Enterprise Market and a 60 per cent fall in derivative warrants listings. Operating expenses increased by 7 per cent to HK$300 million due to upgrading of the exchange's computer and clearing system. HKEx released the quarterly result announcement in a bid to encourage other companies to follow suit.
