HKEX’s Turnover Growth Momentum Strengthens; Buy Rating Maintained and Added to Conviction List

Overview

The report is positive on the risk-reward of Hong Kong Exchanges (0388.HK). The core view is that average daily turnover in the Hong Kong market still has room for further growth, with multiple growth drivers from turnover conversion of the IPO pipeline, improved earnings of technology and internet companies, investor interest in Mainland China’s AI supply chain, Northbound trading fees, and expansion of fixed income and currency products.

Core views

First, the record IPO pipeline is expected to translate into secondary market turnover, and newly listed companies since 2025 have already contributed more than 10% of average daily turnover. Second, if earnings growth of large Chinese internet companies reaches an inflection point, the technology and internet sector’s impact on market turnover may shift from a drag to a tailwind. Third, strong Northbound trading can directly increase trading fee income, while this contribution is not fully captured by average daily turnover in Hong Kong’s cash market. In the long term, RMB internationalization and the development of offshore interest rate derivatives may make fixed income and currency products a new structural growth engine for HKEX.

Analysis framework

The report analyzes growth potential by combining the turnover contribution of listed companies, earnings trends in the technology and internet sector, the Northbound trading fee structure, and benchmarking against global government bond derivatives markets. It uses a three-stage dividend discount model to determine the target price, while referencing Goldman Sachs’ factor framework to assess growth, financial returns, and valuation attributes.

Methodology notes

• Valuation methodsThree-Stage Dividend Discount Model

  Discounts company value based on expected dividends and long-term growth assumptions across different development stages.

  The 12-month target price of HK$540 is based on a three-stage dividend discount model, corresponding to approximately 34x expected 2027 P/E.

• Equity Factor AnalysisGoldman Sachs Factor Profile

  Compares a company’s growth, financial returns, and valuation metrics with the market and industry peers using standardized rankings.

  The growth dimension uses forward sales, EBITDA, and EPS growth; the financial returns dimension uses ROE, ROCE, and CROCI; the valuation dimension uses P/E, P/B, dividend yield, and enterprise value multiples, which are aggregated into a composite percentile.

• Scenario AnalysisOffshore Chinese Government Bond Futures Revenue Scenario

  Estimates revenue potential by referencing open interest, turnover, fee rates, and margin levels in global government bond derivatives markets.

  The scenario assumptions imply combined trading commission and margin interest of approximately US$0.46bn, or about HK$3.59bn in potential incremental revenue.

Asset mapping & comparison

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

• Hong Kong Exchanges (0388.HK)

  The Hong Kong-listed target directly covered by the report, benefiting from turnover growth in the Hong Kong market, mutual market connectivity, and derivatives expansion.

  Strengths

  Owns Hong Kong’s core trading and listing infrastructure, with the IPO pipeline, Northbound trading, and RMB products forming diversified growth drivers.

  Weaknesses

  Earnings remain relatively sensitive to market trading velocity, listing activity, and capital market cycles.

  Comparison

  Compared with market infrastructure businesses that rely solely on traditional cash equity trading, HKEX also has a unique position in connecting Mainland China’s capital markets and developing offshore RMB products.

  Risks

  Faces risks including competition from Mainland China’s capital markets, declining cash market turnover velocity, fee pressure, and persistent deflation in China.

• Offshore Chinese Government Bond Futures

  Could become a new revenue source for HKEX’s fixed income and currency business.

  Strengths

  Benefits from RMB internationalization, overseas investors’ risk management demand, and development of offshore market infrastructure.

  Weaknesses

  The product is still in the cultivation stage, and actual open interest, trading velocity, fee rates, and margin scale may be lower than scenario assumptions.

  Comparison

  The ratio of open interest in Chinese government bond derivatives to outstanding bonds remains significantly lower than in mature markets such as the United States, indicating potential development room.

  Risks

  Slow formation of product liquidity, insufficient investor participation, or changes in regulatory policy could weaken revenue realization.

Key data

• Analyst RatingBuy (Conviction List)The report maintains a positive rating on Hong Kong Exchanges.
• 12-Month Target PriceHK$540Valuation is based on a three-stage dividend discount model.
• Reference Current PriceHK$405.40Share price listed in company-specific disclosure.
• Potential Upsideapproximately 33.2%Calculated based on the HK$540 target price and HK$405.40 reference current price, excluding dividends.
• Implied Valuation34x expected 2027 P/EThe valuation level corresponding to the target price.
• Turnover Contribution from Newly Listed Companiesmore than 10% of average daily turnoverRefers to the turnover contribution from newly listed companies since 2025.
• Northbound Trading Fee ContributionExpected to account for 17% of cash market trading fees and 11% of total trading fees in 2Q2026Reflects that Northbound trading’s revenue contribution is higher than what is shown by a simple average daily turnover metric.
• Potential Revenue from Offshore Chinese Government Bond Futuresapproximately HK$3.59bnScenario estimate is approximately equivalent to 12% of FY2025 revenue and is not company guidance.

Impact & implications

If the IPO pipeline successfully converts into sustained turnover, technology and internet companies’ earnings recover, and investment demand is stimulated, HKEX’s cash market revenue may maintain strong growth. Further expansion of Northbound trading can increase fee income, while products such as offshore Chinese government bond futures, if developed alongside RMB internationalization, are expected to reduce the company’s single reliance on traditional equity turnover and broaden long-term revenue sources. The approximately 33.2% upside reflected in the target price indicates that Goldman Sachs views the current risk-reward as attractive.

Risks

• Business competition between the Hong Kong market and Mainland China’s capital markets intensifies.
• Cash market turnover velocity or trading speed is lower than expected.
• Fee reductions in Mainland China may be transmitted to the Hong Kong market and create fee pressure.
• China remains in a deflationary environment, which may suppress corporate earnings, valuations, and trading activity.
• The IPO pipeline fails to translate into sustained secondary market turnover as expected.
• Open interest, trading volume, and revenue contribution from offshore Chinese government bond futures are lower than scenario estimates.
• Goldman Sachs has investment banking and other client relationships with Hong Kong Exchanges, which may constitute potential conflicts of interest.

What to watch

• Subsequent changes in average daily turnover and turnover velocity in Hong Kong’s cash market.
• Whether the turnover contribution from newly listed companies since 2025 can continue to increase.
• Whether earnings growth of large Chinese internet companies shows a clear inflection point.
• Listings and trading activity of companies related to Mainland China’s AI supply chain.
• Stock Connect Northbound trading volume and its contribution to trading fee income.
• Open interest, average daily turnover, margin, and fee rate performance of offshore Chinese government bond futures.
• The progress of RMB internationalization and the proportion of Chinese government bonds held by overseas investors.