Morgan Stanley expects HKEX to earn 2% less last quarter, but the outlook remains positive

Morgan Stanley published a report, expecting that the Hong Kong Exchanges and Clearing (0388.HK) will see a decline in revenue and profit in the fourth quarter of last year from the historical high in the third quarter of 2025. Market activity was relatively active in January this year, and the bank believes this supports the trend for this year. The bank anticipates a favorable pattern forming in the second half of this year, benefiting from active market activities and increasingly clear signs of easing PPI pressure.

Morgan Stanley expects that the average trading volume of the Hong Kong Exchanges and Clearing in the fourth quarter of 2025 will be HKD 230 billion, an increase of 23% year-on-year, but a decrease of 20% quarter-on-quarter. The average daily trading volume of futures fell 16% year-on-year, while the average daily trading volume of options rose 8% year-on-year. Revenue in the fourth quarter is expected to grow 4% year-on-year, driven by approximately 12% year-on-year growth in core business, partially offset by weak net investment income. Morgan Stanley expects that net investment income for the Hong Kong Exchanges and Clearing will decline year-on-year (due to a high base) and quarter-on-quarter, mainly due to the reduction in the scale of margin funds.

The bank estimates that profit for the Hong Kong Exchanges and Clearing in the fourth quarter of 2025 will decline 2% year-on-year, reflecting the impact of cost stickiness (up 7% year-on-year) and minimum tax rate requirements leading to an increase in tax rates. Rating "Overweight," target price HKD 508