Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Strong Revenue, Controlled Costs: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] reported a strong set of 3Q21 earnings at HKD 3.3 bn, improving HKD 481 mn (17.4%) linked quarter. Results were highlighted by HKEx’ marginally positive operating jaws, as recurring revenue improved HKD 550 mn (12.1%) while overall operating expenses declined nominally (under 0.1%) to HKD 1.5 mn over the period; and*A50, A New Avenue Of Growth: On October 18, 2021, HKEx successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering.

*Strong Revenue, Controlled Costs: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] reported a strong set of 3Q21 earnings at HKD 3.3 bn, improving HKD 481 mn (17.4%) linked quarter. Results were highlighted by HKEx’ marginally positive operating jaws, as recurring revenue improved HKD 550 mn (12.1%) while overall operating expenses declined nominally (under 0.1%) to HKD 1.5 mn over the period; and*A50, A New Avenue Of Growth: On October 18, 2021, HKEx successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering. 

Hong Kong Exchanges & Clearing – Solid Result Even Prior To A50

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT.  HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] successfully launched the MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT.  HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term. 

Hong Kong Exchanges & Clearing – Hollowing Out Of SGX Starts

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] is set to launch a derivative product (China A50 contract), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT - not to mention 53% of its equity derivatives volume. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.

*A50 Challenges From HKEx: On October 18, 2021, the Hong Kong Exchange &amp; Clearing (388.HK) [HKEx] is set to launch a derivative product (China A50 contract), which is predicated on the new MSCI A50 Index. Unfortunately, this new product will be in direct competition with Singapore Exchange’s (SGX.SP) [SGX]  FTSE A50 contract, which represents approximately 10% of company revenue or close to 20% of PBT - not to mention 53% of its equity derivatives volume. HKEx has a very broad range of liquid Hong Kong-China linked products, with the new A50 contract being linked to the northbound Stock Connect – on top of a better fee offering; and*Time For Massive Strategic Move: As SGX needs to contend with a greater than expected impact from the earlier-than-expected launch of HKEX's MSCI China A50 index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth. SGX must consider significant strategic alternatives if it is to avoid being hollowed out over the longer-term.

Singapore Exchange – 50 Hits To Bottom-Line

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Thematic (Sector/Industry)

<ul>
<li>Global exchanges are adapting to a more price pressured environment in trading fees, including the growth of off-exchange trading</li>
<li>The most forward looking exchanges are actively diversifying their revenue base away from trading and transaction fees, and they are focusing on post-trade services, as well as monetising their access to “big data” and data flows</li>
<li>Select exchanges have accelerated their revenue diversification strategies through M&amp;A; two high profile examples are <a href="https://www.smartkarma.com/entities/intercontinental-exchange-inc" target="_blank" data-smartkarma-citation="entities:10221:1" rel="noopener">Intercontinental Exchange (ICE US)</a> acquiring Ellie Mae and <a href="https://www.smartkarma.com/entities/london-stock-exchange-group" target="_blank" data-smartkarma-citation="entities:22034:1" rel="noopener">London Stock Exchange (LSE LN)</a> acquiring Refinitiv which, in part, reflects the attraction of the “big data” opportunity</li>
<li>The recent merger rumours within the exchanges sector between <a href="https://www.smartkarma.com/entities/cboe-global-markets-inc" target="_blank" data-smartkarma-citation="entities:20189:1" rel="noopener">Cboe Global Markets (CBOE US)</a> &amp; <a href="https://www.smartkarma.com/entities/cme-group-inc" target="_blank" data-smartkarma-citation="entities:12353:1" rel="noopener">Cme Group Inc (CME US)</a> – even though this merger did not materialise – reflect the potential for cost savings and synergies from exchange mergers</li>
<li>In emerging markets, the shift away from trading revenues is also apparent, although the pace of change seems more measured due to regulatory constraints</li>
<li>Among developed market exchanges, we believe that ICE is the “poster child” on revenue transformation, and is not overly expensive on valuations, with <a href="https://www.smartkarma.com/entities/deutsche-boerse-ag" target="_blank" data-smartkarma-citation="entities:21604:1" rel="noopener">Deutsche Boerse Ag (DB1 GR)</a> being the value pick and we also find CBOE to be attractive; we believe that LSEG is still a “show me” story on Refinitiv integration, even if valuations are undemanding</li>
<li>In emerging markets, we believe that out-of-favour <a href="https://www.smartkarma.com/entities/b3-sa-brasil-bolsa-balcao" target="_blank" data-smartkarma-citation="entities:24580:1" rel="noopener">B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ)</a> shares have potential to reverse the trend and re-rate on attractive valuations, with smaller cap <a href="https://www.smartkarma.com/entities/bolsa-mexicana-de-valores-sab" target="_blank" data-smartkarma-citation="entities:24766:1" rel="noopener">Bolsa Mexicana De Valores Sab (BOLSAA MM)</a> attractive on both its broad revenue mix and valuations; we are bearish on <a href="https://www.smartkarma.com/entities/hong-kong-exchanges-clearing" target="_blank" data-smartkarma-citation="entities:490:1" rel="noopener">HKEX (388 HK)</a> shares, with the market overly positive on the exchange’s prospects, in our view</li>
<li>
<a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">SGX (SGX SP)</a> is one to watch; management has more to do to diversify the revenue base, yet its valuations are undemanding and competition concerns may be overdone</li>
<li>We include the listed crypto exchange <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> in this exchanges report for the first time; with its business model very geared towards trading and transaction fees, we are cautious on Coinbase given the very high volatility in both volumes and prices inherent in the world of crypto trading, as well as the regulatory hurdles</li>
<li>Risks to our positive views on B3, BolsaMex, ICE, CBOE and Deutsche Boerse include worse than expected post-trade and data and IT revenue generation as well as a more hostile regulatory climate; risks to our bearish views on HKEX and Coinbase are better than expected revenue and EBITDA growth</li>
</ul>


Global exchanges are adapting to a more price pressured environment in trading fees, including the growth of off-exchange trading
The most forward looking exchanges are actively diversifying their revenue base away from trading and transaction fees, and they are focusing on post-trade services, as well as monetising their access to “big data” and data flows
Select exchanges have accelerated their revenue diversification strategies through M&amp;A; two high profile examples are Intercontinental Exchange (ICE US) acquiring Ellie Mae and London Stock Exchange (LSE LN) acquiring Refinitiv which, in part, reflects the attraction of the “big data” opportunity
The recent merger rumours within the exchanges sector between Cboe Global Markets (CBOE US) &amp; Cme Group Inc (CME US) – even though this merger did not materialise – reflect the potential for cost savings and synergies from exchange mergers
In emerging markets, the shift away from trading revenues is also apparent, although the pace of change seems more measured due to regulatory constraints
Among developed market exchanges, we believe that ICE is the “poster child” on revenue transformation, and is not overly expensive on valuations, with Deutsche Boerse Ag (DB1 GR) being the value pick and we also find CBOE to be attractive; we believe that LSEG is still a “show me” story on Refinitiv integration, even if valuations are undemanding
In emerging markets, we believe that out-of-favour B3 Sa - Brasil Bolsa Balcao (B3SA3 BZ) shares have potential to reverse the trend and re-rate on attractive valuations, with smaller cap Bolsa Mexicana De Valores Sab (BOLSAA MM) attractive on both its broad revenue mix and valuations; we are bearish on HKEX (388 HK) shares, with the market overly positive on the exchange’s prospects, in our view

SGX (SGX SP) is one to watch; management has more to do to diversify the revenue base, yet its valuations are undemanding and competition concerns may be overdone
We include the listed crypto exchange Coinbase (COIN US) in this exchanges report for the first time; with its business model very geared towards trading and transaction fees, we are cautious on Coinbase given the very high volatility in both volumes and prices inherent in the world of crypto trading, as well as the regulatory hurdles
Risks to our positive views on B3, BolsaMex, ICE, CBOE and Deutsche Boerse include worse than expected post-trade and data and IT revenue generation as well as a more hostile regulatory climate; risks to our bearish views on HKEX and Coinbase are better than expected revenue and EBITDA growth


Exchanges – More than Just Trading Places

Alpha-Centric ESG Research

Kyle Rudden

Whether we call this a SPAC bubble that has burst or a SPAC bull-run "correcting" itself, one thing is clear – the global SPAC market is cooling off. Cooling off... but not dead. SPACs are likely to play a much larger role in global equity markets than they have historically, and Asia is poised to play a larger role within that larger global equity markets role. We are already seeing evidence of this.Specifically, the recent increase in SPAC-related interest and activity in Asia by: 1) SPAC sponsors (growing number of Asia-based sponsors and foreign SPACs seeking Asia-based targets), 2) Asia's unicorns (several have announced huge SPAC deals), and 3) Asia's financial exchanges (which are increasingly enabling local SPAC listings, such as Singapore Exchange's new framework).It is still too soon to call anything an Asia SPAC "boom," but the growth is tangible and immediate enough for optimism. It motivated me to finally write about a topic I have been meaning to cover – i.e., ESG issues related to the SPAC vehicle itself, as well as to how SPACs are applied in supporting sustainability-related tech startups (e.g., electric vehicles, batteries/storage, clean energy).

Whether we call this a SPAC bubble that has burst or a SPAC bull-run "correcting" itself, one thing is clear – the global SPAC market is cooling off. Cooling off... but not dead. SPACs are likely to play a much larger role in global equity markets than they have historically, and Asia is poised to play a larger role within that larger global equity markets role. We are already seeing evidence of this.Specifically, the recent increase in SPAC-related interest and activity in Asia by: 1) SPAC sponsors (growing number of Asia-based sponsors and foreign SPACs seeking Asia-based targets), 2) Asia's unicorns (several have announced huge SPAC deals), and 3) Asia's financial exchanges (which are increasingly enabling local SPAC listings, such as Singapore Exchange's new framework).It is still too soon to call anything an Asia SPAC "boom," but the growth is tangible and immediate enough for optimism. It motivated me to finally write about a topic I have been meaning to cover – i.e., ESG issues related to the SPAC vehicle itself, as well as to how SPACs are applied in supporting sustainability-related tech startups (e.g., electric vehicles, batteries/storage, clean energy).

SPACs and ESG: Issues Related to the SPAC Vehicle Itself and Sustainability Use Cases

Singapore

Singapore Exchange Limited owns and operates Singapore's Securities and derivatives exchange and their related clearing houses.  The Company also provides ancillary securities processing and information technology services to participants in the financial sector.

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SGX (SGX SP)

Hong Kong Exchanges & Clearing – Solid Result Even Prior To A50

HKEX: HKEx reported a strong QOQ 3Q21 earnings growth of 17.4%, and highlighted by marginally positive operating jaws, as recurring revenue...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Hollowing Out Of SGX Starts

HKEX: On October 18, 2021, HKEx launched MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new...

Thomas J. Monaco

Singapore Exchange – 50 Hits To Bottom-Line

SGX: On October 18th HKEx is set to launch its own China A50 contract, which will be in direct competition with SGX FTSE A50 contract. SGX's A50...

Thomas J. Monaco

Exchanges – More than Just Trading Places

We assess exchanges based on revenue mix ex-trading; the poster child is ICE, other attractive stocks are Deutsche Borse, CBOE, B3 & BolsaMex, with...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Hong Kong Exchanges & Clearing – Solid Result Even Prior To A50

HKEX: HKEx reported a strong QOQ 3Q21 earnings growth of 17.4%, and highlighted by marginally positive operating jaws, as recurring revenue...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Hollowing Out Of SGX Starts

HKEX: On October 18, 2021, HKEx launched MSCI China A50 Connect (HK A50), which is predicated on the new MSCI A50 Index. Unfortunately, this new...

Thomas J. Monaco

Singapore Exchange – 50 Hits To Bottom-Line

SGX: On October 18th HKEx is set to launch its own China A50 contract, which will be in direct competition with SGX FTSE A50 contract. SGX's A50...

Thomas J. Monaco

Exchanges – More than Just Trading Places

We assess exchanges based on revenue mix ex-trading; the poster child is ICE, other attractive stocks are Deutsche Borse, CBOE, B3 & BolsaMex, with...

Victor Galliano

SPACs and ESG: Issues Related to the SPAC Vehicle Itself and Sustainability Use Cases

In Asia there is an undeniable upswell in SPAC activity – by SPAC sponsors, crown-jewel unicorns, and bourses like SGX. This covers ESG issues...

Kyle Rudden