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

*Joint Announcement For Stock Connect Expansion: Just when we thought that Hong Kong Exchanges &amp; Clearing (388.HK) [KKEx] had no other rabbits to pull out of its hat in 2020, the HKEx, Shanghai Stock Exchange (SSE), and Shenzhen Stock Exchange (SZSE) jointly announced further scope for Stock Connect expansion in early 2021 on November 27, 2020 regarding the STAR Market and biotech companies;  *Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and*Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

*Joint Announcement For Stock Connect Expansion: Just when we thought that Hong Kong Exchanges &amp; Clearing (388.HK) [KKEx] had no other rabbits to pull out of its hat in 2020, the HKEx, Shanghai Stock Exchange (SSE), and Shenzhen Stock Exchange (SZSE) jointly announced further scope for Stock Connect expansion in early 2021 on November 27, 2020 regarding the STAR Market and biotech companies;  *Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and*Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV. 

Hong Kong Exchanges & Clearing – Making Another Connection

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

* Peak Value:So much value has been derived again on hope for the shares of Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx], which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. Cash and derivative volumes are also higher on HKEx YOY by 39% and 5%, respectively. As such, we witnessed HKEx’s 2020 share performance of 45.1% that has resulted in a global exchange leading valuation of 9.7x P/BV; and* 3Q20 Results Will Be Telling: HKEx will release its 3Q earnings result on November 11, 2020. While its fund to hope and dream, the reality is that equity turnover velocity and volumes on HKEX have declined on the back of weaker price volatility. Cash equity ADTV has declined from a high of HKD 165 bn in July to HKD 135 bn in August to lower still at HKD 123 bn during September. The October figure to date has declined another 21.9% MOM to HKD 95 bn. Volume weakness was also seen in derivatives contracts from a July peak of 1.4 mn ADTV to 1.0 mn during Aug/Sep). To put these declines into perspective, volumes in the cash equity and derivatives amount to over 50% of HKEx's revenue.

* Peak Value:So much value has been derived again on hope for the shares of Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx], which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. Cash and derivative volumes are also higher on HKEx YOY by 39% and 5%, respectively. As such, we witnessed HKEx’s 2020 share performance of 45.1% that has resulted in a global exchange leading valuation of 9.7x P/BV; and* 3Q20 Results Will Be Telling: HKEx will release its 3Q earnings result on November 11, 2020. While its fund to hope and dream, the reality is that equity turnover velocity and volumes on HKEX have declined on the back of weaker price volatility. Cash equity ADTV has declined from a high of HKD 165 bn in July to HKD 135 bn in August to lower still at HKD 123 bn during September. The October figure to date has declined another 21.9% MOM to HKD 95 bn. Volume weakness was also seen in derivatives contracts from a July peak of 1.4 mn ADTV to 1.0 mn during Aug/Sep). To put these declines into perspective, volumes in the cash equity and derivatives amount to over 50% of HKEx's revenue.

Hong Kong Exchanges & Clearing – Fully Discounted

*Weaker Futures Activity Continues: ASX Limited (ASX.AU) [ASX] remains a among the better listed exchanges globally, earnings fundamentals are likely to remain under pressure for the foreseeable future. During the September 2020 update, stronger capital markets activity was a positive surprise and velocity is tracking well. However, the weaker trend in futures activity continues its downward trend whilst costs continue to rise as ASX continues to invest in technology; and*Expect Consensus To Take Hatchet To EPS:  New revenue initiatives are also unlikely to add materially to growth in FY 2021. In our view, consensus forecasts remain beyond what is rational and significant EPS downgrades are inevitable.  In light of these headwinds, it’s pretty difficult to justify a P/E of 38x FY 2022 consensus forecasts.

*Weaker Futures Activity Continues: ASX Limited (ASX.AU) [ASX] remains a among the better listed exchanges globally, earnings fundamentals are likely to remain under pressure for the foreseeable future. During the September 2020 update, stronger capital markets activity was a positive surprise and velocity is tracking well. However, the weaker trend in futures activity continues its downward trend whilst costs continue to rise as ASX continues to invest in technology; and*Expect Consensus To Take Hatchet To EPS:  New revenue initiatives are also unlikely to add materially to growth in FY 2021. In our view, consensus forecasts remain beyond what is rational and significant EPS downgrades are inevitable.  In light of these headwinds, it’s pretty difficult to justify a P/E of 38x FY 2022 consensus forecasts.

ASX Limited – Softening Trends Continue

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Early Retirement: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his early retirement – following the announcement earlier in  the year that he would not seek re-appointment after October 2021. CEO Li will remain on as CEO and an ex-officio member of the Board until the end of 2020, and become a senior advisor to the Board for six months from January 1st; and </li>
<li>
Focus, Focus, Focus: This is a management team, who all too often, gets distracted and fails to meet both near and long-term targets. That outrageous London Stock Exchange bid of USD 39 bn alone should have cost Charles Li his CEO title. Nevertheless, we are hopeful that HKEx has learned that this failure/distraction has caused an enormous loss of market confidence. </li>
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Early Retirement: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his early retirement – following the announcement earlier in  the year that he would not seek re-appointment after October 2021. CEO Li will remain on as CEO and an ex-officio member of the Board until the end of 2020, and become a senior advisor to the Board for six months from January 1st; and 

Focus, Focus, Focus: This is a management team, who all too often, gets distracted and fails to meet both near and long-term targets. That outrageous London Stock Exchange bid of USD 39 bn alone should have cost Charles Li his CEO title. Nevertheless, we are hopeful that HKEx has learned that this failure/distraction has caused an enormous loss of market confidence. 


Hong Kong Exchanges & Clearing – Addition By Subtraction

United States

CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange and commodities.  The Exchange brings together buyers and sellers of derivatives products on its trading floors, electronic trading platform, and through privately negotiated transactions that it clears.

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Cme Group Inc (CME US)

Hong Kong Exchanges & Clearing – Making Another Connection

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Thomas J. Monaco

Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

HONG KONG EXCHANGES & CLEARING: HKEX Results Were Great And We've Just Witnessed Vaccine Euphoria. How Much Higher Than 10.4x P/BV Can HKEX...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Fully Discounted

Hong Kong Exchanges & Clearing: Alot of Positives Surrounding China Opportunity Has Pushed Shares 45% Higher In 2020, But Recent Fundamentals Would...

Thomas J. Monaco

ASX Limited – Softening Trends Continue

*Weaker Futures Activity Continues: ASX Limited (ASX.AU) [ASX] remains a among the better listed exchanges globally, earnings fundamentals are...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Addition By Subtraction

Early Retirement: Hong Kong Exchanges & Clearing (388.HK) [HKEx] announced that CEO Charles Li has informed the Board of Directors of his...

Thomas J. Monaco

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