China and US Equity Analyst

Roger Xie

10 year investment experience on public and private equity. Deep-dive fundamental research. Specialize in China and US market.

SPACs Coming to Hong Kong ? We Don't Think So

Hong Kong Market: Conversion of US ADRs Will Boost HKEx as Global Trading Venue

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Hong Kong Exchanges & Clearing – Hitting The Wall

Battle Lines Drawn As BABA Builds Out First/Last-Mile Capacity; But Who Will Fund 75+ Bn CNY CapEx?

Equity Bottom-Up

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<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. <strong>We recommend investors to buy HKEx during the pull-back.</strong>
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<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. <strong>We forecast Securities ADT of HK$240bn in FY 21 (Hong Kong and Stock Connect Northbound) and reiterate HKEx TP HKD 550. </strong>
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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