Huaxi Securities has initiated coverage on Hong Kong Exchanges and Clearing Limited (HKEX, 00388) with an "Overweight" rating, citing expectations of strong performance driven by deepening demand for Hong Kong stock allocations from mainland Chinese capital, renewed international investor interest in Hong Kong's tech assets, and a significant acceleration in the listing process of mainland industry leaders on the Hong Kong market. Key highlights from Huaxi Securities' report include:
**Earnings Snapshot** In the first three quarters of 2025, HKEX reported total revenue and other income of HKD 218.51 billion, up 36.63% year-on-year (YoY), with Q3 revenue surging 44.73% YoY to HKD 77.75 billion. Net profit attributable to shareholders reached HKD 134.19 billion, a 44.8% YoY increase, with Q3 net profit hitting a record high of HKD 49 billion, up 55.80% YoY.
**Southbound Trading as a Core Driver of Market Activity** The proportion of southbound trading in Hong Kong's spot market has risen steadily, climbing from 12% in 2019 to 53% in Q3 2025, becoming a key driver of market liquidity. In the first three quarters of 2025, average daily turnover (ADT) for Stock Connect’s southbound trading surged 229% YoY to HKD 1.259 trillion, accounting for nearly half of the spot market’s ADT. This structural shift stems from two factors: (1) Hong Kong’s undervalued, high-dividend assets attract mainland insurers and mutual funds seeking absolute returns; and (2) the scarcity of Hong Kong-listed tech assets (e.g., internet, AI, semiconductors, biotech) supports a "tech + dividends" barbell investment strategy. As mainland capital allocation deepens and global interest in Hong Kong’s tech sector rebounds, southbound trading is expected to sustain liquidity and elevate market activity.
**Accelerated Listings of A-Share Firms Boost HKEX Revenue** Policy support and regulatory streamlining have significantly accelerated the listing of mainland industry leaders in Hong Kong. In April 2024, China’s securities regulator introduced five measures to facilitate mainland listings in Hong Kong, including a "fast-track approval channel" for eligible A-share firms, reducing review time to 30 working days. As of November 26, 2025, over 170 A-share companies or their subsidiaries have announced plans to list in Hong Kong, with 19 already listed and 90 in the pipeline. The IPO boom directly benefits HKEX’s listing fees while expanding the base for long-term growth in trading, clearing, and depository fees. Increased listings of quality Chinese firms could create a virtuous cycle, boosting market capitalization and ADT.
**Vertically Integrated Business Model and Diversified Products** HKEX operates four exchanges (SEHK, HKFE, LME, QME) and five clearinghouses, offering end-to-end services spanning trading, clearing, settlement, custody, and data. In Q1-Q3 2025, spot trading contributed 50.8% of revenue, derivatives 24.2%, commodities 10.4%, and data/connectivity 7.6%. This vertical integration enhances operational efficiency (EBITDA margin: 79%) and mitigates single-market risks through diversified products (stocks, derivatives, commodities, ETFs, currencies). HKEX’s ecosystem positions it to capitalize on market activity and innovation, creating a durable competitive moat.
**Risks:** Lower-than-expected market activity; slower IPO pace; policy uncertainties.
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