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Law360 (February 26, 2020, 7:20 PM EST) -- The Hong Kong Stock Exchange's parent on Wednesday cautioned that the coronavirus outbreak is causing "renewed uncertainty" for its capital markets, tempering an otherwise optimistic outlook after the bourse reported a record annual profit aided by robust initial public offerings activity.
Hong Kong Exchanges and Clearing Ltd. said its stock exchange completed 84 listings that generated HK$314.2 billion ($40.3 billion) in proceeds last year, more than any other exchange in the world. The results came despite turmoil that unsettled its financial markets in 2019, including the U.S.-China trade war, Brexit uncertainty and pro-democracy protests in Hong Kong.
Hong Kong faces more unpredictability in 2020 given the coronavirus outbreak, which has chilled dealmaking in China and threatens to have cross-border implications, depending on how long and far the disease proliferates.
"With a phase one trade deal between China and the U.S., there are signs of recovery in investor confidence, although the current COVID-19 [coronavirus] outbreak brings renewed uncertainty," Hong Kong Exchanges and Clearing Ltd. Chairwoman Laura Cha said in a statement that accompanied the exchange's annual financial report.
IPO activity has slowed over the last four weeks in China, where the virus originated, following government lockdowns and travel restrictions. The ripple effects threaten to spill over to Hong Kong and beyond, though data have yet to reflect any negative results. So far, 23 companies have gone public in Hong Kong this year, compared with 17 IPOs at this time in 2019, according to Dealogic.
Hong Kong was home to notable blue-chip IPOs last year, including Budweiser Brewing Co. APAC, the Hong Kong unit of Anheuser-Busch InBev, which raised HK$45 billion in September. E-commerce giant Alibaba Group Holding Ltd. also completed a HK$101 billion Hong Kong listing in November. Stock listings and trading fees generate a big part of the exchange's revenue.
The Hong Kong bourse's revenue rose 3% to HK$16.3 billion in 2019, compared to HK$15.9 billion in the prior year. The exchange eked out a 1% profit increase to $HK9.4 billion in 2019, compared with HK$9.3 billion the prior year, enough to set a new annual record.
Hong Kong's performance was despite a macro environment that dampened investor confidence and caused trading volumes to fall from record highs in 2018. The exchange said those losses were offset by increases in other areas, including rising income from its Stock Connect program, which links Hong Kong with China's Shanghai and Shenzhen exchanges.
More companies with uneven voting structures also listed in Hong Kong last year, following rule changes in 2018 that provided the exchange with more flexibility to list such companies. The Hong Kong exchange said 10 companies with "weighted voting rights" listed last year, listed raising of HK$117.3 billion, compared with seven listings raising HK$94.2 billion in 2018.
Looking ahead, Cha said the exchange looks to maintain its resilience amid "unpredictability and challenges." She cited geopolitical and macroeconomic uncertainties including the coronavirus.
"Global stock markets in early 2020 have been adversely affected by concerns over the COVID-19 outbreak and this, together with the ongoing Sino-U.S. trade tensions, the upcoming U.S. presidential election and the impact of Brexit, will undoubtedly shape the performance of capital markets in 2020," Cha said.
--Editing by Alanna Weissman.
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