4 Big Reasons Why Investors Should Buy Hong Kong Exchanges and Clearing

Hong Kong Exchanges and Clearing Limited (SEHK: 388), or HKEX, is Hong Kong’s sole stock exchange and has five main business divisions: Cash, Equities & Financial Derivatives, Commodities, Clearing, and Platform & Infrastructure.

HKEX has been growing steadily over the years due to its close proximity to China, and many investors tap the exchange as a platform to invest directly into China, given the country has stringent controls on investing in its capital markets.

Being the sole stock exchange, HKEX also enjoys monopoly status and this allows it to attract heavy fund flows and institutional interest. Here are four reasons why I believe HKEX is a business long-term investors should want to own.

#1: Consistent and growing revenue and profits

Looking at the above five-year financial summary for HKEX, investors should note the impressive growth in both revenues and net profit over this period. Both revenue and net profit rose every year except for FY 2016, and the total cumulative increase from 2014 to 2018 was 61.1% and 80.3%, respectively – admirable numbers.

With the bulk of HKEX’s revenue coming from trading and listing fees, revenue should continue to grow as many companies see HKEX as a gateway between China and the rest of the world.

With its reputation as a leading Asian exchange, the bourse operator should also see increasing fund flows that will continue to drive liquidity for market participants.

#2: High net profit margins

Net profit margins measure the amount of profit that a company is able to make for each dollar of revenue.

On this front, HKEX’s net margin is impressive as it has consistently registered a figure of 50%, implying that out of every dollar of revenue, more than 50 cents is churned out as profit. High net margins provide a good buffer for the group in case of any downturn or recession.

#3: High Return on Equity

Return on Equity (ROE) is a measure of the amount of profit generated per dollar of equity capital. A higher ROE signifies a higher quality business as it is able to convert each dollar of equity into a higher level of profits.

For HKEX, ROE has been above 20% in four out of the last five years, and even then it only briefly dipped to 18% in FY 2016. Those are astounding ROE numbers for a financials firm.

#4: Increasing dividends

Finally, let’s look at HKEX’s dividend payment history. The bourse operator has raised dividends consistently over the years (except for a dip in 2016) and is now paying a full-year dividend per share of HK$6.71, up from HK$3.98 five years ago.

At HKEX’s last traded price of HK$251, this represents a trailing dividend yield of 2.7%.



想提早退休? 想提高每月的被動收入?


HK MoneyClub (www.hkmoneyclub.com)