Through train puts HKEx on track to 10pc profit growth

The stock through train may only leave the station in October, but it has already helped boost turnover and profitability at Hong Kong Exchanges and Clearing, according to brokers.

HKEx, which will report its results on Wednesday, is expected to chalk up profit growth of 5 to 10 per cent for the first half of this year.

Credit Suisse analyst Arjan van Veen estimated net profit for the exchange stood at HK$2.44 billion, up 4.72 per cent from a year earlier.

For the full year, van Veen said HKEx would benefit from the through train, which should raise its turnover by about 5 per cent, and from the revenue from subsidiary London Metal Exchange's clearing house that would come on stream later this year.

The profit growth was mainly driven by the jump in the number of listings, from 23 in the first half of last year to 52 this year. Funds raised through initial public offerings rose 104 per cent to HK$81.14 billion, which translated into higher listing fees for the bourse.

Ben Kwong Man-bun, the head of research at KGI Asia, said HKEx's first-half profit would rise about 10 per cent. "The second half would be even better due to the through train scheme," he said.

In April, Beijing announced the scheme to connect the stock markets of Hong Kong and Shanghai to allow investors to cross-trade stocks on the two bourses, with the total quota set at 550 billion yuan (HK$690 billion). No time frame was given.

KGI Asia and Bank of China (Hong Kong) are among local stockbrokers busy setting up research teams on mainland shares and preparing a platform for cross-border trading.

Chow Chak-chee, the head of product management at BOCHK, said HKEx was set to benefit from the scheme as mainland investors would be able to trade the city's stocks while international investors and fund managers would take advantage of the arbitrage opportunities between Hong Kong and mainland markets.

"This would boost the turnover of HKEx. The turnover of the local stock market has increased in the past two weeks, a signal that investors are positioning themselves for the stock through train," Chow said.

The daily turnover of the bourse rose to almost HK$90 billion from an average of HK$62.93 billion in the first half.

According to a BOCHK survey of 90 securities clients, 54 per cent said they would trade A shares within three months of the launch of the scheme.

Louis Tse Ming-kwong, a director of VC Brokerage, said the scheme would boost turnover but by how much would depend on whether more relaxations were made.

"Many investors are interested but there are challenges, including the quota restriction. Hong Kong investors would need to get the yuan to trade A shares, but they are restricted by the 20,000 yuan daily exchange cap. Unless these restrictions are removed, we won't see a very high cross-trading volume," he said.