Hong Kong exchange sees further headwinds after first-half profit drop

© Reuters. FILE PHOTO: A Stock Exchange of Hong Kong (HKEX) logo in Beijing, China September 4, 2020. REUTERS/Tingshu Wang/File Photo

By Selena Li

HONG KONG (Reuters) -The operator of the Hong Kong Stock Exchange (HKEX) flagged continued pressures from global political tensions and other negative factors as it posted a 27% fall in first-half profit on Wednesday.

"Looking ahead, we know that there will continue to be headwinds," Nicolas Aguzin, Hong Kong Exchanges and Clearing Ltd chief executive, told reporters on a post-results conference call.

"Especially in the short term, geopolitics, market volatility and the rising interest rate environment will continue to impact our markets," Aguzin added. "We expect cash market trading volume to be affected by broader global market sentiment."

Attributable profit at the HKEX slumped to HK$4.8 billion ($612 million) in the first six months from HK$6.6 billion a year earlier, due to a plunge in the number of new listings and lower trading activity. [L1N2ZT07J]

However with a flurry of major Chinese overseas-listed firms such as Alibaba (NYSE:BABA) Group expressing interest in converting their Hong Kong secondary listings into dual primary listings, HKEX is bullish on a "homecoming" effect.

Chinese companies are weighing up the impact of stringent listing rules being prepared by U.S. regulators.

"So not only we're having all these homecoming companies that are just the secondary listing. Now they're starting to shift into primary listing. And that is a very attractive proposition," Aguzin said.

Shares of HKEX closed 1.6% lower in a strong broader market.

Another issue for the HKEX is the London Metal Exchange (LME), which it owns, and which Aguzin said was seeing a more normal level of trading five months after a suspension of trading and the cancellation of some nickel trades.

The suspension came in March as prices dramatically spiked, after which the metal bourse was hit by dwindling nickel trading and an investigation along with lawsuits by disgruntled investors.

"The good news is that we've seen the normalization of the trading environment in the nickel market. The volumes have obviously been a little bit subdued, but trading was placed in a normalized manner," said Aguzin.

An independent review of the trading halt is going on by consultancy Oliver Wyman, said Laura Cha, HKEX's chair, in a results statement.

U.S. hedge fund Elliott Associates and Jane Street Global Trading are suing the LME for $456 million and $15.3 million respectively for cancelled nickel trades.