Active Core Trading Supports HKEx's 2Q26 Earnings Growth, While Weaker Investment Income Partly Offsets

Overview

The report is a 2Q26 earnings preview for HK Exchanges & Clearing. Morgan Stanley expects the company to continue delivering solid growth: active cash-market trading, higher Northbound trading volumes, and a healthy IPO pipeline will support core revenue, while lower net investment income will weigh on overall growth.

Core views

The key view is that turnover remains the most important growth driver. Cash-market ADV in 2Q26 is expected to rise 22% year over year, driving material growth in trading and clearing revenue; meanwhile, revenue growth is expected to outpace expense growth, generating positive operating leverage. Investment income is expected to decline materially due to lower rolling six-month HIBOR, a high base, external investment portfolio redemptions, and a new rebate mechanism.

Analysis framework

The analysis uses the Morgan Stanley ModelWare forecasting framework, incorporating operating indicators such as turnover, Southbound and Northbound trading volumes, interest rates, IPO fundraising, and expense ratios to forecast quarterly revenue, profit, and valuation scenarios.

Methodology notes

• Earnings ForecastingMorgan Stanley ModelWare

  Quarterly earnings forecasts based on operating indicators

  ADV, trading and clearing fees, net investment income, expenses, and tax rates are used as key inputs to estimate 2Q26 revenue and profit.

• Valuation methodsScenario P/E Valuation

  Probability-weighted target price

  The HK$515 target price is based on 25% bull, 65% base, and 10% bear-case scenarios, corresponding to 2026E P/E multiples of 40x, 34x, and 32x, respectively.

Asset mapping & comparison

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

• HK Exchanges & Clearing（0388.HK）

  Directly covered company

  Strengths

  Growth in cash-market turnover, strong Northbound trading volume growth, a recovery in IPO fundraising, and expense growth below revenue growth support core earnings and operating leverage.

  Weaknesses

  Net investment income is sensitive to HIBOR, margin fund balances, external investment portfolios, and rebate policies, creating near-term pressure.

  Comparison

  The base case uses 34x 2026E P/E, while the bull and bear cases use 40x and 32x, respectively.

  Risks

  Regulatory changes affecting turnover and trading velocity, IPO progress falling short of expectations, policy tightening, weak revenue from MSCI index futures and options products, and geopolitical uncertainty.

Key data

• Expected 2Q26 RevenueHK$8,118mn; +12% YoYCore business growth is partly offset by lower net investment income.
• Expected 2Q26 Profit Growth+14% YoYRevenue growth is expected to outpace expense growth.
• Cash Market ADVHK$290bn; +22% YoY, +5% QoQMonthly ADV exceeded HK$300bn in both June and July.
• Northbound ADV+150% YoYSupports trading and clearing fee revenue.
• Trading and Clearing Fees+25% and +43% YoYDriven by strong ADV and Northbound trading volumes.
• Net Investment IncomeHK$971mn; -37% YoY, -24% QoQAffected by lower HIBOR, higher rebates, and external portfolio exits.
• IPO FundraisingHK$210bn; +92% YoY in 1H26There were 474 IPO applications under processing as of end-July.
• Cost-to-Income Ratio20%Expenses are expected to grow 7% year over year, below revenue growth.

Impact & implications

If cash-market turnover remains elevated, Northbound flows stay active, and IPO projects convert more quickly, HKEx's trading and clearing revenue could see further upside. Conversely, lower interest rates and higher rebates will continue to depress investment income, constraining total revenue growth.

Risks

• Regulatory measures affecting average daily turnover and market trading velocity.
• IPOs failing to progress as expected due to market conditions or individual project factors.
• Policy tightening exceeding expectations.
• Revenue contribution from MSCI index futures and options products coming in below expectations.
• Geopolitical uncertainty disrupting capital flows and market trading.
• Further interest-rate declines, higher rebates, or portfolio changes continuing to pressure net investment income.

What to watch

• Whether 2Q26 results announced on August 19, 2026 meet revenue and profit growth expectations.
• Whether cash-market ADV can sustain levels above HK$300bn.
• Changes in Northbound and Southbound trading volumes, particularly the sustainability of strong Northbound growth.
• HIBOR trends, the rebate mechanism, and their impact on net investment income.
• The conversion pace of the 474 IPO applications under processing and subsequent fundraising volumes.
• Expense control, cost-to-income ratio, and effective tax rate performance.