Market environment: 1) On the spot side, Hong Kong stock turnover contracted in June, and overall marginal improvement in the second quarter.
The Hong Kong Stock Exchange ADT in June was HK$111.2 billion, -20.4%/+11.5%, 2024Q2 was HK$121.4 billion, +22.2% month-on-year/+18.1%; among them, the southbound June ADT was -30.9%/+35.2% to HK$38.5 billion, and 2024Q2 was +42.4%/+46.8% to HK$44.1 billion.
Northbound June ADT -4.7%/+3.5% YoY to RMB 118.9 billion, 2024Q2 -4.3%/+3.9% YoY to RMB 127.3 billion. 2) In terms of derivatives, trading activity is basically consistent with the direction of changes in the spot market. Stock options June ADV -28.9%/+13.6% to 0.62 million, 2024Q2 +16.3% month-on-year/+29.3% to 0.747 million; futures options (excluding stock options) ADV -13.4%/+3.7% to 0.753 million, 2024Q2 -3.2%/+19.3% to 0.827 million.
On the primary market side: IPOs picked up month-on-month in June, but are still at an all-time low. All 9 IPOs were listed on the Hong Kong Stock Exchange in June, with total capital raised +103.9%/+80.8% to HK$3.582 billion; a total of 18 IPOs were listed on the Hong Kong Stock Exchange in the second quarter, with a cumulative capital raised of HK$8.446 billion, or -57.6%/-44.0% month-on-year.
In terms of the macroeconomic environment: 1) Domestically, the manufacturing boom was basically stable in June, and the non-manufacturing industry continued to expand. China's manufacturing PMI in June was 49.5%, the same as last month; the non-manufacturing PMI was 50.5%, down 0.6 pct from the previous month. 2) Overseas, the job market cooled down in June, inflation data fell short of expectations, and expectations for interest rate cuts increased significantly. The number of non-farmers added in June was 0.206 million, down from the previous month; CPI rose 3.0% year on year, lower than market expectations of 3.1%. According to the CME, the market expects the probability of cutting interest rates for the first time in September to rise to 86.4%.
Second quarter results outlook: Based on the above high-frequency data, we expect HKEx revenue and investment income of HK$5.48 billion in 2024Q2, +5.4%/+9.2% month-on-year; net profit to mother of HK$3.23 billion, +8.7%/+11.2% month-on-year.
Investment advice: The company's valuation fell to a record low due to the decline in the Hong Kong stock market in June. The US inflation data for June was lower than expected, and interest rate cut transactions may return to the main line of the market. Since the beginning of 2024, the Hong Kong Stock Exchange ADT is HK$109.7 billion, compared to the same period last year, but the HKEx ADT showed a trend of high and low levels in 2023, showing a marginal improvement trend since 2024. Currently, expectations of the Fed's interest rate cut have increased dramatically, and the Hong Kong Stock Exchange ADT is expected to continue to rise; at the same time, based on the lag in margin and own capital investment income compared to changes in overseas interest rates, the company's investment income is expected to remain high in 2024. We expect the company's net profit to be HK$12.41/12.9/14 billion in 2024/2025/2026, respectively, +4.6%/+4.0%/+8.1% year-on-year, respectively. The current stock price corresponds to 25.4×PE in 2024.
Risk warning: US interest rate cuts fell short of expectations; domestic economic recovery fell short of expectations; Hong Kong stocks were hit by the Black Swan incident.