Market environment: 1) On the spot side, the Hong Kong stock market bottomed out and rebounded in August, and trading activity was still sluggish.

The Hang Seng Index rose 3.7% in August, but the HKEx ADT was -3.1%/-6.2% month-on-year, respectively, to 95.5 billion yuan. Among them, southbound ADT was -15.9%/-2.3% month-on-month to HK$28.3 billion, respectively. Northbound trading ADT was -11.5%/-11.0% month-on-year to 96.6 billion yuan, respectively. 2) In terms of derivatives, the ADV for futures and options was basically the same as last month. The ADV for August stock options was +0.5%/-3.4% month-on-year to 0.603 million, and the ADV for futures options (excluding stock options) was -1.0%/-7.8% month-on-year to 0.708 million. 3) In terms of the primary market, the IPO market is still sluggish. Only 3 IPOs were listed in August, and the total amount of capital raised was -60.4% to HK$1.882 billion; from the beginning of the year to date, a total of 43 IPOs were listed on the Hong Kong stock market, an increase of 4 over the same period last year, and the total amount raised was -5.0% to HK$19.814 billion.

In terms of the macroeconomic environment: 1) Domestically, the August economic sentiment data did not perform well, and the pressure for steady growth increased.

China's manufacturing PMI in August was 49.1%, continuing to fall 0.3 percentage points from the previous month, and below seasonal levels; the non-manufacturing PMI was 50.3%, up 0.1 percentage points from the previous month. 2) Overseas, interest rate cuts in September have basically been decided, and capital pressure on the Hong Kong stock market has been reduced. The number of non-farm payrolls in the US increased by 0.142 million after the August seasonal adjustment. The total number of new jobs added in June and July was reduced by 0.086 million. Economic data continued to decline. According to current CME data, the market expects the probability of cutting interest rates by 25 bps and 50 bps in September to be 69.0% and 31.0%, respectively. As of September 10, 10-year US Treasury yields fell 89bps to 3.65% from the end of July.

Future outlook: While the financial side of the Fed's interest rate cut has been relaxed, it has also brought some room for operation to domestic monetary policy, and wait for the activity of Hong Kong stocks to increase after domestic fundamentals steadily recover. Since the beginning of 2024 (September 10), the Hong Kong Stock Exchange ADT is 106.7 billion HKD, -4.3% compared to the same period last year. We expect that with the implementation of the Federal Reserve's interest rate cut expectations in September, on the one hand, overseas capital liquidity will relax, and on the other hand, the US interest rate cut will also bring some room for operation in domestic monetary policy. Domestic economic fundamentals are expected to stabilize, and the Hong Kong stock market activity is expected to increase, and the year-on-year growth rate of the Hong Kong Stock Exchange ADT is expected to change. At the same time, the company's investment income is expected to remain at a high level in 2024, based on the lagging nature of the company's security deposit and own capital investment income compared to changes in overseas interest rates.

Investment advice: We expect HKEx's net profit to be 12.41, 12.9 and 14 billion HKD respectively, up 4.6%, +4.0% and +8.1% year-on-year respectively. The current stock price corresponds to 22.6 x PE in 2024, which has fallen below the lowest valuation level since 2018. We recommend focusing on the bottom allocation opportunities of the Hong Kong Stock Exchange.

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.