China and US Equity Analyst

Roger Xie

Equity Bottom-Up

<ul>
<li>
<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> share price and Hong Kong market in general have tumbled significantly after Hong Kong government revealed the proposal to increase stamp duty on stock to 13bps from 10bps for both buy and sell transaction. The change needs to be approved by the HK Legislative Council and enacted as a law for it to be effective. We believe the real impact of stamp duty is at least 6 month away. And the increase of stock stamp duty could effectively alleviate the budget pressure at Hong Kong government due to the prolonged COVID-19 pandemic. </li>
<li>HKEx serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. Chinese companies and investors prefer HKEx as the offshore trading venue. We don't expect this dynamic will change. In our view, HKEx for Chinese ADR listing and expanding business into lucrative derivative trading would be the game changer.  Although the higher stamp duty could moderately increase trading cost, the impact on trading volume will be small. We believe the market has over-reacted in the sell-off. On the contrary, the multi-year strategic transformation of HKEx would be much larger earning driver for upside. We recommend investors to buy HKEx during the pull-back.
</li>
<li>HKEx also reported 4Q20 net income of HK$2,925mn, up 48% year-over-year. FY20 net income of HK$11,505mn is up 23% year-over-year. Both results are above investors' expectation. The beat was largely driven by investment income, partly offset by higher depreciation. HKEX (388 HK) January ADT (Average Daily Turnover) remains very strong, delivering amazing 136% year-over-year growth in the month. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. 
</li>
</ul>



HKEX (388 HK) share price and Hong Kong market in general have tumbled significantly after Hong Kong government revealed the proposal to increase stamp duty on stock to 13bps from 10bps for both buy and sell transaction. The change needs to be approved by the HK Legislative Council and enacted as a law for it to be effective. We believe the real impact of stamp duty is at least 6 month away. And the increase of stock stamp duty could effectively alleviate the budget pressure at Hong Kong government due to the prolonged COVID-19 pandemic. 
HKEx serves as the only offshore gateway to China capital market. HKEx has consistently enjoyed the superior margin and profitability, given that it can charge higher trading fee rates than other bourses. Chinese companies and investors prefer HKEx as the offshore trading venue. We don't expect this dynamic will change. In our view, HKEx for Chinese ADR listing and expanding business into lucrative derivative trading would be the game changer.  Although the higher stamp duty could moderately increase trading cost, the impact on trading volume will be small. We believe the market has over-reacted in the sell-off. On the contrary, the multi-year strategic transformation of HKEx would be much larger earning driver for upside. We recommend investors to buy HKEx during the pull-back.

HKEx also reported 4Q20 net income of HK$2,925mn, up 48% year-over-year. FY20 net income of HK$11,505mn is up 23% year-over-year. Both results are above investors' expectation. The beat was largely driven by investment income, partly offset by higher depreciation. HKEX (388 HK) January ADT (Average Daily Turnover) remains very strong, delivering amazing 136% year-over-year growth in the month. We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. 



HKEx(388.HK): Transformational Strategy Should Offset the Higher Stamp Duty Fear

Alpha-Centric ESG Research

Kyle Rudden

Last week's announcement by Singapore Exchange – regarding its launching four FTSE ESG Index futures – is a really big deal for SGX. Not that it will not solve all of SGX's problems overnight; the liquidity-building takes time, and four ESG contracts won't make up for all those lost MSCI trades.Nonetheless, these ESG futures contracts are "worth" more than one might think, in two ways. For SGX FIRST, the launch proves its ability to execute. For SGX in general, it's a much-needed boost – financial and psychological – after last year's MSCI losses.I will be publishing a series of on various ESG investment products, starting with derivatives (very soon). That will provide additional detail.

Last week's announcement by Singapore Exchange – regarding its launching four FTSE ESG Index futures – is a really big deal for SGX. Not that it will not solve all of SGX's problems overnight; the liquidity-building takes time, and four ESG contracts won't make up for all those lost MSCI trades.Nonetheless, these ESG futures contracts are "worth" more than one might think, in two ways. For SGX FIRST, the launch proves its ability to execute. For SGX in general, it's a much-needed boost – financial and psychological – after last year's MSCI losses.I will be publishing a series of on various ESG investment products, starting with derivatives (very soon). That will provide additional detail.

SGX FIRST Launches ESG Futures Putting It in the Company of ESG Derivatives Leaders ICE and Eurex

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>The investor rotation into value focusing in on EM and DM banks; our key picks are <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a>, <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> in EM banks, and <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>, and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> in Southern Europe banks</li>
<li>Exchanges and Big Data, the convergence; <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> is strong on recurring revenues, and both ICE and <a href="https://www.smartkarma.com/entities/s-p-global-inc" target="_blank" data-smartkarma-citation="entities:9735:1" rel="noopener">S&amp;P Global Inc. (SPGI US)</a> should deliver shareholder value creation from transformative M&amp;A</li>
<li>Potential for premium growth and returns in digital payments; we like <a href="https://www.smartkarma.com/entities/nexi-spa" target="_blank" data-smartkarma-citation="entities:28921:1" rel="noopener">Nexi SpA (NEXI IM)</a>, where we see clear benefits from its M&amp;A, and we see <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a> as a core holding</li>
<li>Digital wealth managers focus on the mass affluent; <a href="https://www.smartkarma.com/entities/finecobank-banca-fineco-spa" target="_blank" data-smartkarma-citation="entities:21188:1" rel="noopener">Finecobank Banca Fineco (FBK IM)</a> stands out in Europe, <a href="https://www.smartkarma.com/entities/xp-inc" target="_blank" data-smartkarma-citation="entities:28619:1" rel="noopener">XP Inc (XP US)</a> is the leader in Brazil but looks over-valued and exposed to increased competition, in our view</li>
<li>Risks to our positive views on our themes includes slower than expected growth in digital payments, transactions and increased regulation on big data; a slower than expected global GDP recovery also could adversely impact bank fundamentals</li>
</ul>


The investor rotation into value focusing in on EM and DM banks; our key picks are Credicorp Ltd (BAP US), Turkiye Garanti Bankasi As (GARAN TI), Commercial International Bank (COMI EY) in EM banks, and UniCredit SpA (UCG IM), CaixaBank SA (CABK SM), and BPER Banca S.p.A (BPE IM) in Southern Europe banks
Exchanges and Big Data, the convergence; Intercontinental Exchange (ICE US) is strong on recurring revenues, and both ICE and S&amp;P Global Inc. (SPGI US) should deliver shareholder value creation from transformative M&amp;A
Potential for premium growth and returns in digital payments; we like Nexi SpA (NEXI IM), where we see clear benefits from its M&amp;A, and we see Paypal Holdings (PYPL US) as a core holding
Digital wealth managers focus on the mass affluent; Finecobank Banca Fineco (FBK IM) stands out in Europe, XP Inc (XP US) is the leader in Brazil but looks over-valued and exposed to increased competition, in our view
Risks to our positive views on our themes includes slower than expected growth in digital payments, transactions and increased regulation on big data; a slower than expected global GDP recovery also could adversely impact bank fundamentals


FinTech & Financial Investment Themes 2021

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

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.  

Singapore Exchange – Strains Seen For TW Futures

<ul>
<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> has seen lacklustre share price performance relative to other global exchanges over the last six months</li>
<li>This is in part due to lingering concerns regarding SGX’s largely reduced MSCI indexing agreement</li>
<li>To help offset the reduced MSCI agreement, SGX signed a strategic partnership with FTSE Russell in August; recently released SGX market statistics to September reveal encouraging datapoints for equity index derivatives</li>
<li>SGX is also making focused acquisitions in the Data and Information space, as well as establishing itself as a leading currency futures exchange and, in commodities, it is the leading iron ore derivatives market globally</li>
<li>SGX management is focused on cost control, which has served to deliver a 5 percentage points increase in EBITDA margin from FY2016 to FY2020, and contributed to SGX achieving an ROE of 40% in FY2020</li>
<li>We see SGX as an attractive share, with consensus estimates too bearish on SGX’s earnings growth potential, in our view, which should support its re-rating</li>
<li>Risks to our view include a worse than expected hit to equity derivative volumes from the reduced MSCI contract in FY 2021, as well as increased competition from other Asian exchanges for currency futures and commodities trading</li>
</ul>



SGX (SGX SP) has seen lacklustre share price performance relative to other global exchanges over the last six months
This is in part due to lingering concerns regarding SGX’s largely reduced MSCI indexing agreement
To help offset the reduced MSCI agreement, SGX signed a strategic partnership with FTSE Russell in August; recently released SGX market statistics to September reveal encouraging datapoints for equity index derivatives
SGX is also making focused acquisitions in the Data and Information space, as well as establishing itself as a leading currency futures exchange and, in commodities, it is the leading iron ore derivatives market globally
SGX management is focused on cost control, which has served to deliver a 5 percentage points increase in EBITDA margin from FY2016 to FY2020, and contributed to SGX achieving an ROE of 40% in FY2020
We see SGX as an attractive share, with consensus estimates too bearish on SGX’s earnings growth potential, in our view, which should support its re-rating
Risks to our view include a worse than expected hit to equity derivative volumes from the reduced MSCI contract in FY 2021, as well as increased competition from other Asian exchanges for currency futures and commodities trading


SGX (SGX SP): Market Under-Rates Its Growth Potential

United States

Intercontinental Exchange, Inc. operates global commodity and financial products marketplaces.  The Company operates electronic energy markets and soft commodity exchanges as well.  ICE offers access to contracts based on crude oil and refined products, natural gas, power and emissions, as well as agricultural commodities including cocoa, coffee, cotton, orange juice, and sugar.

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Intercontinental Exchange (ICE US)

HKEx(388.HK): Transformational Strategy Should Offset the Higher Stamp Duty Fear

HKEx serves as the only offshore gateway to China capital market. We believe the market has over-reacted on higher stamp duty news in the sell...

Roger Xie

SGX FIRST Launches ESG Futures Putting It in the Company of ESG Derivatives Leaders ICE and Eurex

SGX's lauch of ESG futures is a big deal. It proves SGX FIRST's ability to execute, and softens the pain of MSCI losses.

Kyle Rudden

FinTech & Financial Investment Themes 2021

Our key 2021 investment themes and ideas in EM and S Europe banks, exchanges and data providers, digital payments companies and digital wealth...

Victor Galliano

Singapore Exchange – Strains Seen For TW Futures

SINGAPORE EXCHANGE: November Stats Look Good Generally Across The Board; However, Taiwan Futures Slippage Could Impact A50.

Thomas J. Monaco

SGX (SGX SP): Market Under-Rates Its Growth Potential

The market is too bearish on SGX's revenue and earnings outlook, and we believe that the recently published market statistics for September show...

Victor Galliano

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