Can the growth of HKEX continue?
Just now, $HKEX(00388.HK) announced its Q3 2024 results.
In terms of revenue, HKEX's core business revenue (including trading fees, listing fees, clearing and settlement fees, depository, custody, agency, market data fees, and margin income) increased by 3.32% YoY to HKD 4.852 billion in Q3 2024.
For investment income, HKEX's net investment income from proprietary funds reached HKD 507 million in Q3 2024, surging 40.83% YoY. Total quarterly revenue and investment income amounted to HKD 5.372 billion, up 5.66% YoY.
Profit-wise, HKEX's EBITDA grew 5.94% YoY to HKD 3.926 billion in Q3 2024. Quarterly attributable profit to shareholders was HKD 3.145 billion, rising 6.50% YoY, with profit growth slightly outpacing revenue growth, reflecting further margin improvement.
For the first three quarters of 2024, HKEX's core business revenue totaled HKD 14.542 billion, up 0.81% YoY; investment income from company funds reached HKD 1.408 billion, climbing 19.63% YoY; EBITDA remained flat at HKD 11.587 billion; and net profit also stayed largely flat at HKD 9.27 billion.
Comparing Q3 performance with the first three quarters, Q3 showed significant improvement across revenue, investment income, and profit growth.
What drove the stellar Q3 performance?
September stimulus measures boosted core business performance.
After China announced economic stimulus measures, Hong Kong's spot market became more active in late September 2024. Daily turnover hit record highs on September 27 and 30 at HKD 445.8 billion and HKD 505.9 billion respectively, lifting the average daily turnover for the first three quarters to HKD 1.133 trillion, up 3% YoY.
The measures also stimulated northbound and southbound Stock Connect trading volumes, with record highs of RMB 356.9 billion and HKD 208.7 billion respectively on September 30. Stock Connect trading grew steadily in the first three quarters, with northbound average daily turnover hitting a nine-month high of RMB 123.3 billion (+14% YoY), while southbound averaged HKD 38.3 billion (+19% YoY).
Stock Connect revenue and other income rose to HKD 1.78 billion in the first three quarters (vs. HKD 1.707 billion YoY), with HKD 1.297 billion coming from trading and settlement (vs. HKD 1.247 billion YoY).
In Q3 2024, 15 new companies listed on HKEX, raising HKD 42.2 billion—over three times H1 2024's total.
Notably, this was mainly driven by $MIDEA GROUP(00300.HK)'s September 17 listing, which raised HKD 35.7 billion—Hong Kong's largest IPO since February 2021 and the world's second-largest in the first three quarters of 2024. This was the second company listed under Chapter 18C (Specialist Technology Companies) in Q3 2024.
HKEX disclosed 96 listing applications were in process as of September 30, 2024.
Bond Connect northbound trading maintained an upward trend, with average daily turnover hitting a nine-month high of RMB 44.1 billion (+9% YoY).
The surge in September trading activity significantly boosted HKEX's Q3 and first three quarters' core business performance, while its exceptional investment capabilities remained another key profit driver.
Strong proprietary investment performance
Beyond its core business, HKEX generates low-cost investment income through skilled investing.
HKEX's investment funds primarily come from company funds, margins, and clearing house funds—with the latter two returned to clients—while proprietary fund earnings contribute directly to its results. As shown below, proprietary funds represent a modest portion.
Margin investment income declined YoY in Q3 due to lower average margin balances from reduced requirements, increased interest rebates to attract trading, and higher yen collateral ratios. However, proprietary fund investments delivered strong growth driven by external portfolios (see below).
Dolphin Research noted HKEX's external portfolio performed exceptionally well. In the first three quarters, multi-asset, government/mortgage-backed securities, and listed equities all delivered solid returns (see table below).
Notably, HKEX adjusted its external portfolio by significantly reducing listed equity exposure (typically higher risk/reward) while increasing government/mortgage-backed securities (see below). This aims to reduce market volatility's impact on earnings.
Dolphin Research speculates HKEX's listed equities likely include U.S. or developed market stocks, while bonds/mortgage securities may focus on U.S./European debt—diversifying concentration risks tied to Hong Kong listings and China-related businesses.
With major Western central banks entering rate-cut cycles and U.S. stocks at elevated levels, bonds may offer better upside (as prices rise when rates fall), explaining HKEX's strategy shift.
Can HKEX sustain growth?
HKEX's Q3/first three quarters growth primarily stemmed from September's China stimulus measures.
Dolphin Research observed tepid trading activity before mid-late September—even declining YoY—before the measures took effect.
However, the stimulus' boost to Hong Kong and A-shares appears temporary. Wind data shows active post-stimulus trading in early October (with daily turnover exceeding HKD 200 billion during China's Golden Week and surpassing HKD 500 billion on October 8 after A-shares reopened), but activity cooled significantly by October 22 (~HKD 100 billion), raising sustainability questions.
Still, Hong Kong's Policy Address proposed multiple HKEX-supportive measures:
On October 18, HKEX and the SFC announced streamlined IPO approval timelines to enhance fundraising appeal, plus faster qualified A-share approvals—benefiting new listings and tradable securities.
The Policy Address also pledged Connect mechanism optimizations, infrastructure upgrades (including multi-currency settlement for international investors via the CMU system), fixed-income market expansion, and Wealth Management Connect enhancements to attract capital inflows.
Additionally, Bond Connect (Southbound) may expand after government discussions, potentially increasing fund flows and improving asset pricing.
Other initiatives include strengthening Hong Kong's global asset/wealth management hub status, attracting overseas capital, and encouraging more listings—all boosting HKEX's appeal.
The LME (critical global metals exchange) may extend its warehouse network to Hong Kong, while the Policy Address proposed international gold storage facilities and potential gold product inclusion in Connect—benefiting LME's prospects.
In the first three quarters, LME revenue/other income grew 31.35% YoY to HKD 2.099 billion (13.12% of HKEX total); EBITDA surged 61.68% to HKD 1.189 billion (10.26% of total).
Other Policy Address measures (startup/unicorn incubation, SME support, talent acquisition, property market optimization) may feed future listings, while wealth effects could drive capital inflows.
Long-term HKEX prospects remain bright.
Conclusion
Current Hong Kong market volatility may pressure HKEX short-term, but mainland/Hong Kong government support ensures steady long-term development.
As a trading platform, HKEX's fate intertwines with Hong Kong stocks. The "HK Top 100"—a key market bellwether—closely tracks HKEX's performance.
The 2024 Hong Kong Listed Companies Development Summit & 11th "HK Top 100" Awards (hosted by HK Top 100 Research Centre, co-organized by Dolphin Research and Futu I&E, supported by media including Ta Kung Wen Wei Financial PR Group) will be held November 11 at HKCEC. Discussions will focus on consolidating Hong Kong's global wealth management/capital fundraising status and enriching fintech ecosystems.
Can HKEX climb higher in the "HK Top 100" rankings amid fundamental improvements? Stay tuned.
Author: Mao Ting
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