Alpha-Centric ESG Research

Kyle Rudden

In <a href="https://www.smartkarma.com/insights/asia-exchanges-lead-in-esg-hkex-jpx-sgx" target="_blank" data-smartkarma-citation="insights:34447" rel="noopener">Asia Exchanges Lead in ESG: HKEX, JPX, SGX</a>, I assessed and benchmarked the world's financial exchanges on their contributions to sustainable/ESG investing and finance, and general Corporate Social Responsibility performance. Much has transpired, so it is time for an update... of sorts."Of sorts," because this version focuses exclusively on listed Asian exchange stocks, employs a more robust assessment/benchmarking model, and incorporates additional (previously-unavailable) data points. In short, it is more targeted, substantive, and actionable. Less breadth, more depth.The first analysis was based more on aspirations than on accomplishments because few exchanges had accomplished anything at that point. This version reflects real-world progress, and the results are significantly more insightful. The "downside," however, is information-overload.Therefore, this Insight addresses methodology and overall results (scores, rankings), and I will dive deeper into specific subjects (e.g., ESG derivatives) and exchanges separately. The Asian exchanges herein are: <a href="https://www.smartkarma.com/entities/asx-ltd" target="_blank" data-smartkarma-citation="entities:552:1" rel="noopener">ASX Limited (ASX AU)</a>, <a href="https://www.smartkarma.com/entities/bombay-stock-exchange" target="_blank" data-smartkarma-citation="entities:23694:1" rel="noopener">BSE Limited (BSE IN)</a>, <a href="https://www.smartkarma.com/entities/bursa-malaysia-bhd" target="_blank" data-smartkarma-citation="entities:17112:1" rel="noopener">Bursa Malaysia (BURSA MK)</a>, <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>, <a href="https://www.smartkarma.com/entities/japan-exchange-group-inc" target="_blank" data-smartkarma-citation="entities:11266:1" rel="noopener">Japan Exchange Group (8697 JP)</a>, <a href="https://www.smartkarma.com/entities/nzx-ltd" target="_blank" data-smartkarma-citation="entities:10696:1" rel="noopener">NZX Limited (NZX NZ)</a>, and <a href="https://www.smartkarma.com/entities/singapore-exchange-ltd" target="_blank" data-smartkarma-citation="entities:1047:1" rel="noopener">Singapore Exchange (SGX SP)</a>.

In Asia Exchanges Lead in ESG: HKEX, JPX, SGX, I assessed and benchmarked the world's financial exchanges on their contributions to sustainable/ESG investing and finance, and general Corporate Social Responsibility performance. Much has transpired, so it is time for an update... of sorts."Of sorts," because this version focuses exclusively on listed Asian exchange stocks, employs a more robust assessment/benchmarking model, and incorporates additional (previously-unavailable) data points. In short, it is more targeted, substantive, and actionable. Less breadth, more depth.The first analysis was based more on aspirations than on accomplishments because few exchanges had accomplished anything at that point. This version reflects real-world progress, and the results are significantly more insightful. The "downside," however, is information-overload.Therefore, this Insight addresses methodology and overall results (scores, rankings), and I will dive deeper into specific subjects (e.g., ESG derivatives) and exchanges separately. The Asian exchanges herein are: ASX Limited (ASX AU), BSE Limited (BSE IN), Bursa Malaysia (BURSA MK), HKEX (388 HK), Japan Exchange Group (8697 JP), NZX Limited (NZX NZ), and Singapore Exchange (SGX SP).

Sustainable Stock Exchanges: SGX, HKEX Are Shaping the Future of Sustainable/ESG Investing in Asia

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

*Poor Results See No Signs Of Near-Term Abatement: Singapore Exchange (SGX.SP) [SGX] reported FY 1H21 results of SGD 240.4 mn, declining SGD 18.2 mn (7.0%) HOH. Excluding the SGD 15.6 mn in gains primarily attributed to non-cash fair value on its BidFX acquisition, SGX’core operating result would have declined SGD 33.9 mn (13.1%) over the period; and*Derivatives Challenges Led By Taiwan: The largest semi-annual results delta was attributed to derivatives, which declined SGD 33.6 mn or 12.2%. SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 with their move to the Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Until recently, 99.8% of the Taiwan index futures volumes has were held by SGX, but its dominant market share position is beginning to crack. As time passes, we will get an idea of how much volume of the Taiwan index futures will remain with MSCI indices and move to HKEx which has significant implications for SGX's lucrative A50 contract.

*Poor Results See No Signs Of Near-Term Abatement: Singapore Exchange (SGX.SP) [SGX] reported FY 1H21 results of SGD 240.4 mn, declining SGD 18.2 mn (7.0%) HOH. Excluding the SGD 15.6 mn in gains primarily attributed to non-cash fair value on its BidFX acquisition, SGX’core operating result would have declined SGD 33.9 mn (13.1%) over the period; and*Derivatives Challenges Led By Taiwan: The largest semi-annual results delta was attributed to derivatives, which declined SGD 33.6 mn or 12.2%. SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 with their move to the Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Until recently, 99.8% of the Taiwan index futures volumes has were held by SGX, but its dominant market share position is beginning to crack. As time passes, we will get an idea of how much volume of the Taiwan index futures will remain with MSCI indices and move to HKEx which has significant implications for SGX's lucrative A50 contract.

*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?

*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

Philippines

Philippine Stock Exchange Inc. is a self-regulatory organization that provides a fair, efficient, transparent and orderly market for the buying and selling of securities.

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Philippine Stock Exchange (PSE PM)

Sustainable Stock Exchanges: SGX, HKEX Are Shaping the Future of Sustainable/ESG Investing in Asia

Sustainability is imperative, capital is its cornerstone, and markets move capital. Exchanges, at that vital intersection, are agents of progress...

Kyle Rudden

Singapore Exchange - Going South

SINGAPORE EXCHANGE: SGX FY 1H21 results declined 7.0% HOH. Excluding the BidFX gain, SGX’ core operating result would have declined 13.1%. SGX...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Making Another Connection

HONG KONG EXCHANGES & CLEARING: The Three Exchanges Have Added To The Stock Connect With STAR Market and Biotech Additions

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

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

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