Profits, Trading Plunge At World's 3rd Largest Exchange As Hong Kong Chaos Spreads

The social-economic turmoil in Hong Kong is certainly unprecedented. 

Retail sales have crashed, housing prices are rolling over, monetary policy via the Hong Kong Monetary Authority is failing to stabilize the economy, and now, new evidence suggests the financial industry is starting to crack.

Hong Kong Exchanges & Clearing Ltd., the world's third-largest stock exchange (in terms of average daily trading volume), recorded its worst profit in three years as investors fled regional stocks.

Net income of the exchange plunged 10% to $282 million in Q3 YoY, Bloomberg reported Wednesday. This was one of the most significant drops since the global slowdown in 2016.

Last week, Hong Kong crashed into a technical recession, the first time since the 2008/09 financial crisis. Hong Kong's economy plunged 3.2% in Q3, government data showed last week, exceeding economists' lowest estimates and confirming a technical recession has begun.

Hong Kong Financial Secretary Paul Chan warned after more than half a year of violent anti-government demonstrations, the end of October marked the start of the recession. 

"After seeing negative growth in the second quarter, the situation continued in the third quarter, meaning our economy has entered technical recession," Chan wrote in a blog post.

"It seems it will be extremely difficult for us to reach full-year economic growth of 0 to 1%. I would not rule out the possibility that the full-year economic growth will be negative."

With two consecutive quarters of negative growth and no end to the protests in sight, Bloomberg has noted in a series of graphs that a full-year economic contraction is likely for 2020.

Since the protests became violent in early summer, Hong Kong Exchanges & Clearing shares have slipped 12%.

As the crisis deepens in Hong Kong, it's likely the Hang Seng is setting up for another leg lower.