Hong Kong Exchanges and Clearing Limited's performance declined, but the future market is promising?
The Hong Kong stock market has been sluggish over the past two years, and the performance of the once highly regarded $HKEX(00388.HK) has also been somewhat affected.
At noon on April 24, HKEX released its Q1 2024 financial report, which showed mixed results.
However, judging from the stock price performance, HKEX has seen consecutive days of rising trading volume, with a 3.55% increase on April 24, which is a positive sign.
How did HKEX perform in Q1?
The financial report shows that in Q1, HKEX's revenue and other income amounted to HKD 5.2 billion, down 6% year-on-year but up 7% quarter-on-quarter; net profit attributable to shareholders was HKD 2.97 billion, down 13% year-on-year but up 14% quarter-on-quarter.
HKEX pointed out that Q1 2023 benefited from a strong post-pandemic economic recovery. This means that the high base in Q1 2023 makes the year-on-year decline in Q1 2024 understandable.
Breaking it down, core business revenue fell 7% year-on-year to HKD 4.66 billion, mainly due to lower trading and settlement fees from decreased average daily turnover, reduced net investment income from margin and clearing funds, and lower listing fees. However, LME and LME Clear raised trading and settlement fees by an average of 13% starting January 1, 2024, and trading volume in this segment increased, offsetting some of the decline.
For details, see the chart below.
Net investment income from corporate funds was HKD 540 million, down 3% year-on-year, due to lower net fair value gains from externally managed investment funds (external portfolio).
By business segment, the cash market segment's revenue and other income were HKD 1.88 billion, down nearly 12% year-on-year, mainly due to lower average daily turnover in equity securities products.
The equity securities and financial derivatives segment's revenue and other income were HKD 1.57 billion, down 15% year-on-year, primarily due to lower net investment income from reduced margin scale.
The commodities segment's revenue and other income were HKD 670 million, up 33% year-on-year, a standout performance.
Is HKEX poised for a rebound?
HKEX CEO Bonnie Chan also stated in the quarterly report that despite a weak global macroeconomic environment, the group's derivatives and commodities businesses performed strongly, with derivatives trading volume hitting a quarterly record. Although the stock market was affected by macroeconomic sentiment, the average daily turnover in March and April 2024 has shown a clear recovery, indicating a revival in investor confidence. Stock Connect trading volume continued to rise, with Northbound Trading (Shanghai and Shenzhen) and Bond Connect volumes increasing significantly, with Bond Connect hitting a quarterly record.
Notably, beyond the recovery in average daily turnover, some Hong Kong-listed tech stocks have recently rallied, drawing widespread attention.
For example, over the last three trading days, $TENCENT(00700.HK) surged 13.3%; $MEITUAN(03690.HK) also rose 19.2%; and $KUAISHOU-W(01024.HK) gained 19.73%.
Additionally, year-to-date, stocks like Tencent, Meituan, and Trip.com Group (09961.HK) have also risen.
The gradual recovery and rally of these star Hong Kong stocks are critical signals and have driven the broader market rebound.
Analysts attribute the recent surge in Hong Kong stocks to three factors: 1) policy support, including the China Securities Regulatory Commission's pledge to deepen cooperation with Hong Kong; 2) spillover effects from A-share high-dividend trends, reflected in sustained southbound capital inflows, particularly into high-dividend sectors; and 3) the market's significant underestimation of the resilience of the internet sector's fundamentals.
Some institutions have recently expressed optimism about the Hong Kong market.
UBS released a report stating that it upgraded its rating on Chinese mainland and Hong Kong stocks to overweight, citing strong earnings despite concerns over China's real estate and macroeconomic conditions. The report noted that consumer and internet sectors dominate the MSCI China Index, and with early signs of consumption recovery, earnings are expected to improve.
Everbright Securities also recently published a report stating that, overall, buy-side institutions remain optimistic about Hong Kong stocks, believing that with China's ongoing economic recovery, rising expectations of overseas rate cuts, and attractive valuations, the Hong Kong market is poised for a strong Q2.
A broader recovery in the Hong Kong market would directly benefit HKEX, making its future performance worth monitoring.
Author: Yun Zhi Feng Qi
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