(Bloomberg) -- Hong Kong’s stock exchange is poised to report its second quarterly profit decline as China’s widening crackdown on a broad range of sectors roiled markets and delayed major initial public offerings.

Net income at Hong Kong Exchanges & Clearing Ltd. is seen falling to HK$3.13 billion ($403 million) in the three months through September from HK$3.35 billion a year earlier, according to a Bloomberg survey of seven analysts. That followed a 6.7% profit drop in the previous three months after a record first quarter. The bourse is scheduled to report on Wednesday. 

The exchange’s turnover slumped as much as 18% in the third quarter as China’s scrutiny over everything from technology to online tutors and real estate spurred a selloff that at its extreme wiped more than $1 trillion from the value of Chinese stocks globally. Hong Kong’s primary-listing market is also going through a dry patch as several potential billion-dollar IPOs, including those by NetEase Inc.’s music unit and electric car-maker Nio Inc., were put on hold on uncertainty over Beijing’s stance toward offshore listings.

After a stellar first half, the value of IPOs dipped to just $6.2 billion in the third quarter -- the lowest since the start of the pandemic and behind South Korea for the first time in four years. Still, 2021 will likely rank highly in terms of IPO proceeds thanks to a surge in the first six months. With $37.7 billion raised so far, this year is on track to be one of the best of the last decade. 

Meanwhile, the exchange’s introduction of MSCI A50 futures, a long-awaited alternative for hedging Chinese stocks versus rival Singapore, may boost earnings prospects. Credit Suisse estimated that HKEX’s new product will contribute about 2% to its total revenue by 2023, as historically a new contract takes six to 12 months to build up liquidity. 

During the first week of trading since its Oct. 18 debut, an average of 2,579 contracts traded a day, according to data compiled by Bloomberg. 

“The adjacencies from futures to warrants, index arbitrage and the like should be especially pronounced at HKEX, with a large retail investor base,” JPMorgan’s analysts led by Harsh Wardhan Modi wrote in an Oct. 13 note. They expected the bourse to trade at higher price-to-earnings ratio. 

Shares of HKEX have gained 13% this year, beating the 4.4% decline in the benchmark Hang Seng Index.

Another catalyst for HKEX’s growth hinges on China’s plans on how to regulate overseas IPOs. The country’s cybersecurity watchdog in July required companies seeking to list abroad to get pre-approval to ensure they comply with local laws. Those planning to go public in Hong Kong may be exempted, Bloomberg News reported earlier. 

Merrill Lynch expected an announcement by the end of this year on whether HKEX would be exempt or partially exempt from its tightening grip, which will be “key to its IPO pipeline to 2022.” 

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