Asia Tea Time - Cup 46 ☕

This week I talk Hong Kong Exchanges and Clearing, investing at all-time highs, and scams for Taylor Swift tickets.

Macro in Asia

Hong Kong Exchanges and Clearing sees sharp fall in profits in Q4 2023

Hong Kong Exchanges and Clearing (HKEX), Hong Kong’s sole stock market operator, saw a steep drop in fourth-quarter 2023 profits.

One of the key drivers of revenues – average daily turnover – declined 29% year-on-year in the last three months of 2023 to HK$80.4 billion (US$10.3 billion).

Why it’s happening

• Depressed stock market activity in Hong Kong, via low trading turnover (which is basically the value of shares traded everyday) means that HKEX is seeing its profits head in the same direction as Hong Kong stock prices – down.

• Hong Kong is the “Gateway to China” so it makes sense its stock market would suffer if investor sentiment isn’t that great on China. And it isn’t. 

Why it matters

• HKEX had benefitted hugely from the boom in initial public offerings (IPOs) of Chinese companies throughout the 2010s but that now seems to be just a distant memory.

• Funds raised from Hong Kong IPOs in 2023 was just US$5.7 billion, the smallest in more than 20 years and was down 56% year-on-year.  

What’s next?

• Investors will be watching closely for any serious measures from the Chinese government to kickstart the economy and get investors interested in the world’s second-largest economy again. Just don’t hold your breath.

Tim’s Take 

Expectations for HKEX’s results weren’t that high but the actual numbers still managed to disappoint.

Adding insult to injury is the fact that the Indian stock market recently overtook Hong Kong as the world’s fourth-most valuable stock market – measured by the value of all listed companies on the various exchanges.

💡

It’s been no secret that Hong Kong’s stock market has been in the doldrums over the past three years or so. But its returns over the past 25 years haven’t been that great either. 

A recent op-ed in the Financial Times – by American economist Stephen Roach – caused an outcry given its doomsday-like tone about Hong Kong’s future.

However, what was most interesting from that opinion piece, at least from an investing perspective, is the fact that Hong Kong’s Hang Seng Index is effectively flat since 1997 – having gained only 4% over the past 27 years.

Of course, the interim saw a lot of excitement as Chinese companies rushed to list in Hong Kong – benefitting the likes of HKEX.

The exchange operator has still done extraordinarily well on any measure. Since beginning life as a public company in 2000, its share price is up around 19-fold today.

That’s even with its shares’ 28% decline in 2023. Yet the challenges that HKEX faces today seem to be unique – geopolitical tensions between the US and China, reliance on a major economy that is facing a property crisis, and a world that is shifting investment towards other Asian economies. 

All these pose a big problem to HKEX’s ability to attract companies to raise capital on its exchange. 

While the past 20 years have been rather kind to shareholders of HKEX, as opposed to those invested in the Hang Seng Index, the next two decades will likely look markedly different.

Tim's Money Tip of the Week

Investing when markets are at all-time highs can feel unnatural at times. I get that. Why are we buying something that has reached its high? Surely, it’s going to fall so it’s better to just wait and buy?

Well, therein lies the problem. If we are consistently investing into a broad market ETF that tracks the US (or global) markets then we’ve got exposure to the majority of listed stocks.

Taking the S&P 500 Index in the US, which hit a new high this past week, is a case in point. As the world’s pre-eminent stock market index that many of us use to invest, it’s a great case study.

If we look at that index, and its data since 1970, investing at an all-time high didn’t necessarily mean you were worse off a year down the line.

In fact, if you’d invested at an all-time high for the S&P 500 Index during that period, on average 70% of the time the S&P 500 Index would have been higher a year later.

So, whether markets are at all-time highs – or plumbing new lows – we should stick to our investment plan and keep putting that money away for the future.

Story of the Week

With Taylor Swift in Singapore for six shows (starting from tonight), it’s no surprise that there are scams galore for those highly-prized tickets. 

It was revealed that S$213,000 (US$158,000) was lost to Taylor Swift concert ticket scams – just in the last two months.

With 330 victims, it’s no small matter and highlights how cyber-scammers are riding the waves to ill-gotten gains from any hot event nowadays.