Summary of Hong Kong Exchanges and Clearing Limited (HKEX) Conference Call Industry Overview - The Hong Kong stock market has experienced a significant rise driven by multiple factors including themes, valuations, capital flows, and policies, benefiting from favorable conditions and central government support for Hong Kong as a financial center [2][3] - The performance of the Hang Seng Index has been strong, with an increase of over 20% within two months, reaching a three-year high [3] Key Insights and Arguments - The stock price of HKEX is highly correlated with Average Daily Turnover (ADT), which is a key indicator of its profitability, influenced by market average PE and daily turnover rate [2][4] - In 2024, there is an expected increase in the proactive allocation of southbound funds to Hong Kong stocks, with a significant recovery in ADT, particularly in Q4, reaching a historical high as of March 7, 2025 [2][10] - The current daily turnover rate in the Hong Kong stock market is at a historical high, slightly above the historical valuation mean, indicating high market activity driven by turnover rate [2][10] - The strategic position and policy benefits of HKEX are crucial for its growth potential and sustainability, especially following the 2018 listing mechanism reform that significantly changed the market structure [2][12] Performance Metrics - As of March 7, 2025, HKEX has seen a cumulative increase of 22% since the beginning of the year, with a 19% rise post-Chinese New Year, although slightly lower than the Hang Seng Index's 20% increase [5][8] - The correlation between HKEX's net profit and ADT is historically high at 89%, indicating that ADT is a core driver of profitability [5][8] - The ADT has shown a significant rebound, with expectations for a strong correlation to continue into 2025, which will likely enhance performance [8][14] Market Dynamics - The ADT can be broken down into market capitalization multiplied by the average turnover rate, with the latter being influenced by the company's profitability and average PE [6] - Since 2019, the increasing market capitalization of new economy companies has made the technology sector increasingly influential on overall valuation [7] - The market has seen a shift in the proportion of southbound funds, which have become more active, particularly in Q4, contributing significantly to market turnover [10][12] Future Outlook - The sustainable growth of HKEX is expected to rely on its strategic positioning and policy advantages, with a notable absence of significant policy changes in recent years compared to historical levels [12] - The market is projected to see a continued increase in the proportion of technology stocks, which could reach around 50% in the current market cycle [12][13] - The forecast for HKEX's net profit in 2025 is approximately HKD 14.3 billion, reflecting a 10% year-on-year increase, with a target price set at HKD 419, maintaining a buy rating [4][14] Additional Important Points - High dividend strategies and the strong performance of leading platform companies like Alibaba, Tencent, and Xiaomi have significantly contributed to the current market rally, with these companies accounting for over 20% of daily trading volume [4][12] - The Hong Kong market is positioned as a key player in China's economic landscape, with a high number of potential IPOs, particularly in the biotech and technology sectors, indicating a robust future for the market [13]
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