Citigroup Boosts Stake in HKEX Amid Hong Kong's Trading Surge

Citigroup has emerged as a significant player in the Hong Kong financial market, making a notable move by increasing its stake in Hong Kong Exchanges and Clearing Limited (HKEX) to become the second-largest shareholder. According to disclosures by HKEX, on August 1, Citigroup acquired an additional 225,000 shares at an average price of HKD 417.24 per share, amounting to a total transaction value of roughly HKD 93.86 million. This acquisition brings Citigroup's total holdings to 63.49 million shares, representing a 5% ownership stake, just behind the Hong Kong Special Administrative Region Government, which holds 5.9%.

The shareholder structure of HKEX is diverse and decentralized. In addition to the substantial stakes held by Citigroup and the Hong Kong Government, other significant shareholders include institutional investors like Morgan Stanley, which holds 3.53%. Mutual fund companies such as E Fund, China Universal Asset Management, and China Asset Management Company are also prominent stakeholders, showcasing a varied investment landscape.

In recent months, the Hong Kong stock market has witnessed vibrant trading activities, with a surge in southbound capital inflows that have already surpassed last year's total. The IPO market in Hong Kong has regained its global leadership, which has resulted in foreign investment banks adjusting their outlook on HKEX. Notably, in July, Goldman Sachs raised its target price for HKEX shares from HKD 450 to HKD 500, reflecting an improved daily turnover performance compared to previous expectations.

HKEX’s revenue model is highly sensitive to trading volumes and transaction values, with the first half of the year displaying notable growth. The average daily turnover in the Hong Kong stock market rose 118% year-on-year to HKD 240.2 billion, marking the highest figure since 2010. Meanwhile, Stock Connect’s daily average trading increased by 195% to HKD 110.96 billion, and a robust performance was recorded in derivatives, with futures and options trading volumes increasing by 11% year-on-year.

Analysts highlight several potential catalysts for HKEX's profitability, including a surge in dual listings (A+H shares) that bolster Hong Kong's IPO market. The city reestablishing itself as a global financial hub with an uptick in daily transaction volumes and earnings further elevates its position. Furthermore, contributing factors such as declining real interest rates driving stock transactions, the introduction of innovative derivative products, and a narrowing of bid-ask spreads in the spot market, along with persistently increasing southbound capital flows, are also viewed as positive drivers. Nevertheless, risks such as the pace of corporate earnings recovery, sustainability of IPOs, and stability of foreign capital inflows could pose challenges to HKEX's valuation.