The latest research report released by Goldman Sachs, a well-known investment bank, will$HKEX (00388.HK)$The target price was raised to HK$345 and the “Buy” rating was confirmed. Currently, the stock price on the Hong Kong Stock Exchange is HK$279, which means that it is still 23.66% higher than Goldman Sachs's target price.

Ten days ago, Goldman Sachs raised its target price on the Hong Kong Stock Exchange from HK$330 to HK$341. Why did Goldman Sachs raise the target price on the Hong Kong Stock Exchange again this time?

The Hong Kong Stock Exchange is favored

On May 27, the Hong Kong stock market strengthened. By the close, the Hong Kong Hang Seng Index rose 1.17% to 18827.35 points, ending four consecutive negative results; the Hang Seng Technology Index rose 1.71% to 3864.48 points. On the same day, the total turnover of the Hong Kong stock market was HK$118.858 billion, with a net purchase of HK$4.425 billion from Southbound Capital.

On the evening of the same day, positive news came from the Hong Kong Stock Exchange. Goldman Sachs said that some positive factors are expected to help the Hong Kong Stock Exchange rise further, including good trading volume and policy measures to boost the Shanghai-Hong Kong Stock Exchange and liquidity.

Goldman Sachs released a research report confirming the “buy” rating of the Hong Kong Stock Exchange. The target price was raised from HK$341 to HK$345, and the company's earnings forecast per share for this year and next two years was raised by 3% and 2%, reflecting recent strong Hong Kong stock transactions. “There is more evidence that the earnings cycle per share bottomed out, and the price-earnings ratio of the stock market is lower than the mid-cycle, providing attractive risk returns.”

Goldman Sachs believes that there are a number of positive themes driving the stock price of the Hong Kong Stock Exchange. Among them, the average 60-day daily turnover in the Hong Kong stock market has rebounded from a low of HK$87 billion in the fourth quarter of last year to HK$120 billion. With favorable macroeconomics and profits for listed companies, it will bring huge room for growth. In addition, Hong Kong traded derivatives and London Metal Exchange derivatives transactions increased by 10% and 40% respectively.

In addition, expanding connectivity policies increase profits related to the Hong Kong Stock Exchange and make Southbound Connect a greater driving force for stock market transactions. In particular, lowering the dividend tax on southbound investors can further increase the participation of southbound investors. The Hong Kong Stock Exchange and the Hong Kong Securities Regulatory Commission are also studying the introduction of treasury bond futures trading, and the 2020 ETF trading difference reform has multiplied transactions in this part of the market as an example.

It is worth noting that 10 days ago, Goldman Sachs also raised its target price on the Hong Kong Stock Exchange. At the time, Goldman Sachs published a research report stating that it was measuring the importance of listed companies' profits to stock trading volume on the Hong Kong Stock Exchange. The bank pointed out that with the potential reduction in dividend taxes, it believes daily trading volume may benefit from this, because dividend strategies are still the focus of investors' attention, and south-bound investors tend to prefer stocks with high dividend yields. The bank raised the earnings estimate per share on the Hong Kong Stock Exchange by up to 4%. The target price was raised from HK$330 to HK$341, and the rating was “buy”.

Recently, Bank of America Securities also raised its target price on the Hong Kong Stock Exchange. The brokerage firm raised its target price by 7% from HK$290 to HK$310. Bank of America Securities said that since the increase in secondary market turnover may come from short-term capital flows, and there are doubts about the sustainability of the improved sentiment, the bank will focus on IPO performance to measure the long-term sentiment of the market, but the recovery of related IPO activities is still slow.

Bank of America Securities said it raised the Hong Kong Stock Exchange's average daily turnover forecast for the 2024 fiscal year from 100 billion yuan to 115 billion yuan, while the average daily turnover from the beginning of the year to date was 109 billion yuan. The strong market rebound in the past month gave the bank some confidence in this year's turnover growth and raised its net profit forecast for 2024 to 2026 by 1% to 4%.

Fangzheng Securities pointed out that Hong Kong stock IPO fundraising continued to pick up month-on-month, and the arrival of mainland companies and Saudi companies in Hong Kong is expected to be a new driver for Hong Kong stock IPOs. In April, 3 new listed companies were added to the Hong Kong stock market, and the IPO fund-raising scale was HK$3.11 billion. In terms of listing reserves, according to Wind statistics, as of May 16, a total of 101 companies are currently in the process of listing applications (excluding projects that have not progressed and have been sent back). Furthermore, on April 19, the Securities Regulatory Commission issued a document supporting the listing of leading companies in the mainland industry on the Hong Kong Stock Exchange. On May 9, Hong Kong Stock Exchange Chief Executive Chen Yiting stated that “the first Saudi Arabian company's listing in Hong Kong is just around the corner.” The subsequent acceleration of the listing of mainland Saudi companies in Hong Kong is expected to bring new opportunities for Hong Kong stock IPOs.

Fangzheng Securities said that since April, capital market policies combined with capital improvements have boosted a strong rebound in the Hong Kong stock market. It is recommended to focus on the Hong Kong Stock Exchange, which has directly benefited from the recovery in Hong Kong stock trading. The Hong Kong stock market will have some differences and fluctuations after a sharp rise in the short term. Currently, the valuation of the Hong Kong Stock Exchange is in the 23% fraction of the past ten years. Before the intensive implementation of Hong Kong stock capital market policies, adjustments are an opportunity. Considering the high and low base effect of the Hong Kong Stock Exchange's performance last year, overseas interest rate cuts are expected to maintain a high level of investment income. Subsequent market trading sentiment recovery is expected to gradually restore the Hong Kong Stock Exchange's profit growth rate.

The latest developments on the Hong Kong Stock Exchange

Recently, the Hong Kong Stock Exchange announced that it will establish a new interest and currency advisory group to support the development of the Group's related business.

The newly established advisory panel will be chaired by Hong Kong Stock Exchange's Co-Head of Markets So Yingying to provide advice on the Group's fixed interest rate and currency business strategies, promote the introduction of new products and services, promote the development of the fixed interest rate and currency markets, and consolidate Hong Kong's position as an international financial center. The Fixed Interest and Currency Advisory Group will be established on June 1, 2024. The members include representatives of the Hong Kong Stock Exchange and industry leaders in the fixed interest rate and currency market.

Also, news that the Hong Kong Stock Exchange may continue to operate under extreme weather has recently attracted market attention. On May 20, there were reports that the Hong Kong Stock Exchange proposed opening in bad weather, or that implementation was delayed from the original plan in July this year.

In response, Hong Kong's Secretary for Financial Services and the Treasury, Mr Hui Ching-yu, said after attending an event that the schedule has been clear and unchanged. Implementation details will be announced in the middle of this year. The relevant arrangements will be implemented when the market is ready, and there is no problem of delaying implementation. Xu Zhengyu said that the details of the policy cover many aspects, including front-office transactions, back-office settlement, brokerage arrangements, etc., and a series of arrangements will take time to implement.

On May 21, the Chief Executive of the Hong Kong Special Administrative Region, Lee Ka-chiu, said that in July, the results of the consultation on maintaining the operation of the Hong Kong Stock Exchange under extreme weather conditions will be announced.

In early May, while attending the Hong Kong-Saudi Capital Market Forum, Hong Kong Stock Exchange CEO Chen Yiting revealed that large-scale IPOs are expected to return to the market. Last year, the Hong Kong Stock Exchange further relaxed the listing requirements for specialty technology companies. Many companies that may be listed in Hong Kong fall into the field of expertise.

Chen Yiting pointed out that on April 19, the China Securities Regulatory Commission announced 5 capital market cooperation measures with Hong Kong, one of which is to support leading companies in the mainland industry to go public in Hong Kong. This move fully confirms that the Hong Kong Stock Exchange is a good financing platform and will further boost the Hong Kong IPO market. The Hong Kong Stock Exchange Listing Division has indeed received many inquiries from companies regarding listing procedures, etc. The Hong Kong Stock Exchange has carried many large-scale IPOs in the past, and there is no doubt about its strength; the number of IPO applications in the first quarter increased by about 30% year over year, and currently about 100 companies are queuing up to go public.

Chen Yiting said that in the last two weeks of April, the Hang Seng Index showed a strong trend, and the daily trading volume of Hong Kong stocks remained basically at the level of HK$130 billion to HK$150 billion, which is a marked improvement over last year. Even when the mainland market is closed during the “May 1st” Golden Week, the trading volume will remain at HK$110 billion. The recovery in the stock market means the restoration of investor confidence, which is conducive to the successful listing of more companies. Chen Yiting believes that with the recovery of the market and the increase in investor confidence, there is no problem at all accepting large-scale IPOs.

On April 23 this year, the Chief Executive of the Hong Kong Special Administrative Region, Li Jiachao, said during a meeting with the media before attending the Executive Council that he warmly welcomed the recent announcement by the China Securities Regulatory Commission of five measures to strengthen Hong Kong's financial market, and thanked the central government for its concern and support for Hong Kong. Li Jiachao said that the SAR government has always maintained communication with the central government to discuss different policies to benefit Hong Kong. The above measures will provide more attraction and convenience for domestic and foreign investors, bring more investment and capital, and bring substantial help to the development of Hong Kong's capital market.

Li Jiachao mentioned that more leading companies in the mainland industry will be listed in Hong Kong, which will inject more vitality and appeal into the Hong Kong initial public offering (IPO) market. He revealed that Hong Kong Exchanges and Clearing Limited (the Hong Kong Stock Exchange) is currently reviewing nearly 100 listing applications, and dozens of companies have applied for listing in Hong Kong with mainland regulators. Among them, there are large enterprises from traditional industries such as manufacturing and logistics, as well as key companies from high-value-added industries such as AI and fintech.

Li Jiachao quoted several international accountants as expecting that the Hong Kong IPO market will raise more than HK$100 billion this year. The revitalization of the IPO market will stimulate the trading atmosphere in the stock market, increase liquidity and turnover, and help currently oversold stocks return to a reasonable valuation range.

Deloitte China Capital Markets Services previously predicted that in 2024, 80 new shares will be listed on the Hong Kong Stock Exchange, with a financing amount of around HK$100 billion. At the beginning of this year, PricewaterhouseCoopers also expected about 80 companies to go public in Hong Kong in 2024, raising more than HK$100 billion in capital for the year, and the Hong Kong IPO market is expected to return to the top three funding markets in the world in 2024.

Editor/Jeffrey