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13-11-2007: Record profit expected for HKex but risks loom
HONG KONG: Asia's largest listed stock exchange, Hong Kong Exchanges and Clearing Ltd, is expected to report its quarterly profit almost tripled thanks to a jump in fees as investors surged into Chinese stocks.
Analysts say as long as Beijing maintains capital controls, HKEx will command a strategic premium as the market of choice for global investors to gain exposure to China's sizzling growth through trading China plays listed on the exchange.
But the stock market has turned cautious in the last couple of weeks over the widening impact of the US subprime mortgage crisis, casting doubt over whether the exchange can maintain its profit levels and lofty valuations.
The launch of a landmark scheme to let mainland Chinese citizens invest directly in Hong Kong securities - a catalyst for the third-quarter rally - is also expected to be delayed.
And mainland stock funds that bought furiously in Hong Kong in October under the country's Qualified Domestic Institutional Investor (QDII) programme were directed this month to trim their exposure to Hong Kong, sources and market players say
Against this backdrop, risks are growing for HKEx shares as Hong Kong equities correct from overbought positions, having rallied nearly 60% from August to all-time highs in October.
"Things had looked too similar to recent bubbles," said Sam Hilton, an analyst at Fox-Pitt, Kelton (Asia) Ltd, who last week downgraded the stock to underperform from neutral. "It made sense to factor in a real market correction going forward."
Analysts are predicting HKEx almost tripled earnings in the three months to September. The world's No. 7 exchange is expected to report a record net profit to HK$1.57 billion (RM669.47 million), from HK$565.7 million a year ago, according to the average of three analyst forecasts.
As subprime woes roiled financial markets globally, Beijing said in August that mainland citizens would be allowed to invest in Hong Kong, sending the Hang Seng Index to successive highs, with a peak in October. - Reuters
