Insights

Here’s Why HKEX Shares Surged Nearly 10% Today

Hong Kong Exchanges and Clearing Limited (SEHK: 388) saw its share price pop by nearly 10% today. Here’s what investors need to know. – Hong Kong skyline during the day with financial numbers at top

What happened

Shares of Hong Kong Exchanges and Clearing Limited (SEHK: 388), also known as HKEX and the city’s sole stock exchange operator, saw an extraordinary Tuesday.

HKEX’s share price opened higher this morning and surged during the day to finish Tuesday trading up a whopping 9.8%.

HKEX shares easily outperformed Hong Kong’s benchmark Hang Seng Index, which finished the day up 2.1%.

So what

Global stocks were already riding high after Monday’s gains on Wall Street, which followed the announcement of a massive dose of fiscal stimulus in Europe that amounts to €750 billion (US$860 billion).

However, Tuesday brought more positive news for the Hong Kong market and, in particular, HKEX.

First, news of an enormous planned IPO of Ant Group, the payments firm pat-owned by Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988), on the Shanghai and Hong Kong stock markets boosted sentiment for HKEX.

According to a Reuters report, Ant is looking to list shares on both the Shanghai and Hong Kong markets at an eye-watering valuation of US$200 billion. For a stock exchange operator such as HKEX, that will mean a substantial amount of income in listing fees.

Second, the Hang Seng Indexes Company – which compiles the benchmark Hang Seng Index among other sub-indices – announced that it would be creating a new index focused on the performance of the city’s top listed technology stocks.

Named the Hang Seng Tech Index, it will include the 30 largest tech companies that have a combined market capitalisation of HK$12.21 trillion (US$1.58 trillion).

In the new index, giants Alibaba and Tencent Holdings Ltd (SEHK: 700) will be the top two constituents.

Emerging online services giant Meituan Dianping (SEHK: 3690), smartphone and Internet of Things (IoT) specialist Xiaomi Corp (SEHK: 1810), and smartphone camera components producer Sunny Optical Technology Group Co Ltd (SEHK: 2382) will round out the top five.

Now what

HKEX will likely continue to benefit from the “homecoming” trend that is seeing Chinese US-listed companies carry out secondary listings in Hong Kong.

We’ve already seen that with online gaming firm NetEase Inc (NASDAQ: NTES) (SEHK: 9999) and JD.com Inc (NASDAQ: JD) (SEHK: 9618), both of which listed on Hong Kong’s market in the second quarter.

However, the massive prize of capturing Ant Group’s IPO will be a huge boon for HKEX, particularly given its rumoured valuation.

If investors recall, Jack Ma initially shunned Hong Kong’s stock market when he took Alibaba public in 2014 – instead deciding to list shares on the New York Stock Exchange.

With rising tensions between the US and China not looking like they will dissipate any time soon, capital-raising plans for China’s fast-growing tech companies will no doubt favour the Hong Kong market. That can only be a good thing for HKEX over the long term.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Tim Phillips owns shares in Tencent Holdings Ltd.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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