HKEX benefits in the near term from an active cash market, while Connect, ETPs, and fixed-income products provide long-term incremental growth

Overview

This report summarizes HKEX's 1H26 analyst briefing. Its core view is that the cash market will remain the principal contributor to near-term growth, while expansion of the Connect programs, deeper ETP product offerings, and the fixed income and commodities strategy will gradually create long-term, diversified revenue drivers. Morgan Stanley assigns HKEX an Overweight rating and an HK$515.00 price target.

Core views

HKEX benefited from an active IPO market and multiple business initiatives in 1H26, posting record revenue and operating metrics, and Morgan Stanley expects this trend to continue. The principal near-term support still comes from the cash market, including IPOs, follow-on financing, and secondary-market activity remaining at elevated levels. Financing activity and market turnover therefore remain the core sources of near-term earnings sensitivity. The Connect programs are an important pillar of continued growth in cross-border trading. The report notes that strong Northbound trading reflects active A-share markets; if high-profile A-share IPOs are included in the Connect programs, Northbound trading activity could increase further. Management outlined three avenues for expansion: first, broadening the participant base, with the National Financial Regulatory Administration recently announcing that Mainland Chinese insurance companies may invest in Hong Kong ETFs through the Connect programs; second, including more products; and third, upgrading the platform, potentially including improvements to the trading calendar. Together, these measures improve market accessibility and expand cross-border capital and trading flows. ETPs are evolving from supplementary products into a more significant structural driver of turnover. Average daily ETP turnover increased by more than 70% year over year in 1H26, with strong retail investor participation. Planned products include developing sector indices, expanding fixed-income ETFs, and launching a 60/40 ETF targeting Southbound investment demand. Morgan Stanley believes that additional product launches and broader ETP coverage within the Connect programs could further support turnover growth. Fixed income and commodities represent long-term revenue sources under HKEX's multi-asset strategy. Participation in the 5-year Chinese government bond futures launched in early August has been encouraging. Management hopes to add products with other maturities in the future and use them to strengthen offshore renminbi price discovery, gradually supporting CNH bond issuance. Although the near-term contribution from this business is expected to remain below that of the cash market, product expansion and infrastructure development could reduce revenue dependence on activity in a single equity market and strengthen the long-term multi-asset ecosystem. Under the Morgan Stanley ModelWare framework, the report presents HKEX's EPS for 2025 through 2028 as HK$14.01, HK$14.40, HK$15.38, and HK$16.44, respectively, with 2026 through 2028 representing estimates. EBITDA for the same period is HK$22,822 million, HK$23,517 million, HK$25,191 million, and HK$26,958 million, respectively, while ModelWare net income is HK$17,754 million, HK$18,253 million, HK$19,485 million, and HK$20,832 million. The corresponding P/E declines from 29.1x to 28.8x, 27.0x, and 25.2x, while P/BV declines from 8.8x to 8.6x, 8.4x, and 8.0x. ROE is 32.6%, 31.1%, 32.1%, and 33.2%, respectively. These forecasts reflect a path of rising profits alongside business growth and declining valuation multiples over time. The HK$515 price target uses a probability-weighted scenario valuation, with weights of 25%, 65%, and 10% for the bull, base, and bear cases, respectively. The base case applies a 34x 2026e P/E, corresponding to the level in 2021 when market sentiment remained elevated. The bull case applies 40x, corresponding to the level reached in 2020 when IPO momentum was strong. The bear case applies 32x, still above the levels seen from 2022 to 2024, when uncertainty persisted. The probability distribution is tilted toward upside scenarios, reflecting Morgan Stanley's view that average daily turnover and capital flows will improve further after financial risks bottom out. Based on the August 19, 2026 closing price of HK$414.60, the price target implies 24% upside. The report also maintains an Overweight rating and an In-Line industry view. Upside risks identified in the report include a sharp rebound in market financing activity, faster conversion of the IPO pipeline, improved liquidity in China and globally, and stronger policy support for capital markets. Downside risks include regulatory changes affecting average daily turnover and turnover velocity, IPOs failing to proceed as expected, greater-than-expected policy tightening, geopolitical uncertainty, and a decline in revenue contributions from MSCI index futures and options products.

Analysis framework

Morgan Stanley first extracts business developments from the 1H26 analyst briefing and then separates growth drivers by time horizon: IPOs, follow-on financing, and secondary-market turnover explain recent performance, while the Connect programs, ETPs, fixed income, and commodities products explain long-term structural growth. It then presents earnings and valuation metrics using the ModelWare framework and sets bull, base, and bear scenarios based on historical P/E levels, deriving the price target through probability weighting.

Methodology notes

• Valuation MethodPE/PEG valuation

  2026e P/E scenario valuation

  The report uses 32x, 34x, and 40x 2026e P/E for the bear, base, and bull cases, respectively, using historical market conditions from 2020 through 2024 as references for the multiples.

• (Out-of-Vocabulary Method)

  Probability weighting of bull, base, and bear cases

  The report assigns weights of 25% to the bull case, 65% to the base case, and 10% to the bear case, combining valuations under different turnover, capital-flow, and market environments into an HK$515 price target.

• (Out-of-Vocabulary Method)

  Morgan Stanley ModelWare framework

  The report uses Morgan Stanley's ModelWare framework to organize financial metrics such as EPS, EBITDA, net income, returns, and valuation multiples; the input does not disclose the framework's internal calculation formulas.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Hong Kong Exchanges and Clearing Limited (0388.HK)

  HKEX directly benefits from IPOs, follow-on financing, secondary-market turnover, Connect program flows, ETP product expansion, and growth in its fixed income and commodities business.

  Strengths

  Record revenue and operating metrics in 1H26; room to expand the Connect platform; average daily ETP turnover increased by more than 70% year over year; continued enhancement of the multi-asset product ecosystem.

  Weaknesses

  Near-term revenue growth remains primarily dependent on cash-market activity, while long-term diversification initiatives still need to materialize gradually through new products, participation, and trading volume.

  Comparison

  The report does not provide a direct comparison with peer exchanges.

  Risks

  Regulatory changes, weaker-than-expected IPO conversion, policy tightening, geopolitical uncertainty, and declining revenue from MSCI index futures and options.

Key data

• Stock RatingOverweightIndustry view is In-Line
• Price TargetHK$515.0024% upside relative to the August 19, 2026 closing price
• Closing PriceHK$414.60August 19, 2026
• 52-Week Price RangeHK$360.00-HK$466.00Market data from the report cover
• Average Daily ETP Turnover GrowthMore than 70% year-over-year growth1H26, with strong retail investor participation
• Price Target Scenario WeightsBull 25% / Base 65% / Bear 10%Probability-weighted price target framework
• 2026e P/E ScenariosBull 40x / Base 34x / Bear 32xReferencing the market environments of 2020, 2021, and 2022 through 2024, respectively
• EPSHK$14.01 / HK$14.40 / HK$15.38 / HK$16.442025 / 2026e / 2027e / 2028e; identified in the report as based on consensus estimates
• Refinitiv Consensus EPSHK$13.76 / HK$15.39 / HK$15.73 / HK$16.892025 / 2026e / 2027e / 2028e
• EBITDAHK$22,822 million / HK$23,517 million / HK$25,191 million / HK$26,958 million2025 / 2026e / 2027e / 2028e
• ModelWare Net IncomeHK$17,754 million / HK$18,253 million / HK$19,485 million / HK$20,832 million2025 / 2026e / 2027e / 2028e
• P/E29.1x / 28.8x / 27.0x / 25.2x2025 / 2026e / 2027e / 2028e
• P/BV8.8x / 8.6x / 8.4x / 8.0x2025 / 2026e / 2027e / 2028e
• ROE32.6% / 31.1% / 32.1% / 33.2%2025 / 2026e / 2027e / 2028e
• RNOA32.7% / 31.2% / 32.2% / 33.2%2025 / 2026e / 2027e / 2028e
• Diluted Shares Outstanding1,271 million sharesCurrent data from the report cover
• Current Market CapitalizationHK$526,945 millionCurrent data from the report cover
• Current Enterprise ValueHK$527,343 millionCurrent data from the report cover
• Average Daily Stock Trading ValueHK$1,947 millionCurrent data from the report cover

Impact & implications

The report believes HKEX's near-term earnings will continue to be driven primarily by changes in IPOs, follow-on financing, and secondary-market activity, but its revenue mix is broadening. Expansion of the investor and product scope of the Connect programs, rapid growth in ETP turnover, and development of renminbi fixed-income products could increase cross-border trading and multi-asset revenue sources over the longer term, supporting Morgan Stanley's Overweight rating and HK$515 price target.

Risks

• A sharp rebound in market financing activity could produce upside above the base case.
• Faster conversion of the IPO pipeline could cause listing- and trading-related revenue to exceed expectations.
• Improved liquidity in China and globally could further increase average daily turnover and capital flows.
• Stronger policies supporting capital markets could provide additional upside.
• Regulatory changes affecting average daily turnover and turnover velocity could weaken trading revenue.
• IPOs may fail to proceed as expected for various reasons.
• Greater-than-expected policy tightening could suppress market activity.
• Geopolitical uncertainty could affect financing and trading sentiment.
• Revenue contributions from MSCI index futures and options products could decline.

What to watch

• Monitor progress in including high-profile A-share IPOs in the Connect programs and the impact on Northbound trading.
• Monitor Mainland Chinese insurance companies' participation in Hong Kong ETF Connect, the inclusion of more products, and optimization of the trading calendar.
• Monitor the launch progress of sector indices, fixed-income ETFs, and a 60/40 ETF targeting Southbound investment.
• Monitor sustained participation in 5-year Chinese government bond futures and the addition of products with other maturities.
• Monitor whether IPOs, follow-on financing, and secondary-market activity can remain at elevated levels.