388 HKEX is expected to report its Q3 2024 results on 23 October 2024. The company is forecast to show a core revenue growth of 9.3% in Q3, primarily driven by record ADT figures. The quarter’s ADT reached HK$118.8 billion, representing a 20.7% year-over-year growth.However, despite these positive figures, the growth rates in revenue and net profit were slower, at 6.8% and 6.0%, respectively. The lower growth rates are attributed to declining net investment income (NII) and a higher effective tax rate. Additionally, the derivatives and commodities markets experienced strong performance, with average daily volumes growing by 10.5% and 17.3%, respectively.
Impact of Lower Fed Rates on Market and IPO Activity
A lower Federal Reserve interest rate environment is expected to benefit HKEX. Historical data suggests that stock market turnover and velocity in Hong Kong rise during interest rate cuts. The company has witnessed 45 IPOs year-to-date, raising HK$55.6 billion in 2024, with the standout being the HK$35.7 billion IPO of Chinese home appliance maker Midea. The low-rate environment is likely to support a robust IPO pipeline of over 100 applicants, ensuring continued growth into 2025.
Valuation and Price Outlook
Although HKEX’s share price has surged 35% over the past two weeks, mainly due to the PBOC policy easing, the current valuation is considered rich. HKEX’s valuation has jumped from a year-to-date low of 21x 2025F price-to-earnings (PE) ratio to 32x, which is 1.2 standard deviations (SD) above its long-term mean of 27.0x. Further, the premium valuation of HKEX relative to the Hang Seng Index (HSI) has risen to 2.3x, surpassing its historical average of 2.0x.
Despite these strong share price performances, the sustainability of such high ADT levels is uncertain, and geopolitical risks, such as the upcoming US election, could contribute to a normalization of ADT to around HK$150 billion in Q4 2024.
