Hong Kong’s stock exchange is poised to report a sixth consecutive quarterly profit decline, the longest slump in its history as a listed company, as market turmoil drags down trading and initial public offerings.

Net income for the three months that ended in September at the Hong Kong Exchanges & Clearing Ltd. is estimated to drop 31% to HK$2.23 billion ($400 million; US$284 million) from a year earlier, according to a survey of five analysts.

Stock trading continued to be weighed down by global economic concerns and a crackdown on private enterprise in mainland China that has shaken investor confidence in the world’s second-largest economy. Daily trading averaged HK$98.3 billion a day during the third quarter, down 40% from a year earlier.

While initial public offerings recovered after a near stand-still in the first half of the year, coming in at about $8 billion in the quarter, overall deals for the year are still down 71% from the same period of 2021.

“There are some further downside risks to HKEX’s share price as average daily turnover could remain subdued into a seasonally weaker 4Q,” Citigroup Inc. analysts led by Yafei Tian said in a note. Citigroup estimated HKEX’s net income to fall 36% to HK$2.1 billion.

Goldman Sachs Group Inc. analyst Gurpreet Singh Sahi and his team said costs will be a top focus of investors after the bourse delivered a a “negative cost surprise” of 15% growth during the second quarter. Goldman predicts a 37% decline in profits, excluding investment income.

<span class='see_also_inread'><b>See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/views/china-focus/china-must-avoid-debt-deflation-spiral?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>China must avoid a debt-deflation spiral</a></b></span>

Any improvement over the next few quarters will hinge on further reforms to expand the IPO regime and the stock trading links between Hong Kong and mainland bourses, according to Goldman.

On the upside, analysts are looking for a potential bump of Chinese mainland firms listing in the city amid tension over auditing issues. US regulators are currently in Hong Kong to look through the auditing papers of some New York-listed Chinese firms as part of an attempt to defuse a decades-long impasse and avoid them being kicked off US exchanges.

The exchange is “a potential beneficiary no matter whether the China-US auditing deal leads to success or failure,” Mike Yau, an analyst at China Renaissance Holdings, said in a report.

HKEX’s share price is down 43% so far this year at HK$258, against a consensus target price HK$384.89. The firm has 32 buys, 4 holds and 1 sell.

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