(Nov 6): Hong Kong’s exchange operator unexpectedly posted a decline in profit in the third quarter as an initial public offering (IPO) boom and trading ran into headwinds fuelled by concerns over massive investments to fund the build-out of artificial intelligence (AI).

In the first drop since early 2024, net income at Hong Kong Exchanges & Clearing Ltd fell 1% from a year earlier to HK$4.9 billion (RM2.5 billion) in the period, according to an exchange filing on Friday, missing the average analyst estimate of HK$5.03 billion. Core business revenue held steady at HK$7.47 billion.

“As we navigate heightened macro uncertainties and ongoing volatility, our conviction in building a deeper and more diverse multi-asset ecosystem has only strengthened,” chief executive officer Bonnie Chan said in the statement.

The results end a streak of record-breaking quarters driven by technology and AI-related debuts. While Hong Kong’s listing pipeline remains active with more than 400 companies waiting in the wings, investor sentiment is beginning to cool amid broader scrutiny of AI valuations and China’s economic outlook.

The rate of abandoned listings has surged to its highest level since the global financial crisis, with about a quarter of planned offerings this year failing to reach completion, according to data compiled by Bloomberg.

Beijing is also said to be tightening scrutiny of listed company spin-offs, potentially curtailing a key pipeline of IPOs. At the same time, China’s crackdown on illicit cross-border securities trading and concerns over a potential wealth tax are curbing equity turnover.

Hong Kong’s Securities and Futures Commission has stepped up oversight of IPO bookbuilding practices to root out inflated demand, while probing suspected share rigging tied to one of the city’s most high-profile recent debuts.

HKEX’s shares fell 3% in the early afternoon session on Friday. The city’s benchmark slid 1.1% amid a global sell-off. 

From July to September, headline average daily trading at HKEX dropped 11% “against a backdrop of more cautious market sentiment amid inflation concerns, uncertainty over US interest rates and weaker momentum in AI-related stocks”, HKEX said.  

Southbound trading of Stock Connect, where Chinese investors buy and sell Hong Kong stocks, slumped 30% from a year earlier to HK$107.3 billion a day. Northbound trading rose 15% during the same period.

A total of 118 companies debuted in the first nine months this year, raising a combined HK$388.4 billion and pushing HKEX to become the second-largest IPO market globally.

HKEX reported nine-month capital expenditure of HK$2.48 billion on acquiring new office space, and another HK$1.47 billion to develop and upgrade trading and clearing systems, and renovation of office premises, it said. Capital expenditure rose 29% in the first nine months. 

Uploaded by Tham Yek Lee