Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

Singapore Exchange - Another Deal, Another Distraction

Hong Kong Exchanges and Clearing / Equity Bottom-Up

Hong Kong Exchanges and Clearing (388 HK)

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and *Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center.

*Exemption Could Add To IPO Pipeline: Mainland China is planning to exempt companies seeking to list on Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] from first seeking approval from the Cyberspace Administration of China (CAC). The idea behind the exemption is mainland Chinese Hong Kong IPOs were already subject to higher scrutiny and approval from the China Securities Regulatory Commission (CSRC); and *Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experience, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center. 

Hong Kong Exchanges & Clearing – Take It When You Can Get It

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Wealth Management Connect: Wealth Management (WM) Connect should allow the residents of Hong Kong and the Greater Bay Area (GBA) to purchase WM products in each other's markets. The launch of a GBA financial connection has been the key turning point to convert HKEx from a conduit of capital flows to mainland China to a marketplace for transactions which connect mainland China and global liquidity; and
Consultation Paper Released: On May 6, 2021, mainland China’s financial regulatory authorities released a consultation paper on WM Connect. This should be another avenue to bring additional mainland Chinese liquidity through HKEX. Benefits to HKEX in the beginning will be limited given the initial quotas on residents and limitations on products.

*Wealth Management Connect: Wealth Management (WM) Connect should allow the residents of Hong Kong and the Greater Bay Area (GBA) to purchase WM products in each other's markets. The launch of a GBA financial connection has been the key turning point to convert HKEx from a conduit of capital flows to mainland China to a marketplace for transactions which connect mainland China and global liquidity; and
Consultation Paper Released: On May 6, 2021, mainland China’s financial regulatory authorities released a consultation paper on WM Connect. This should be another avenue to bring additional mainland Chinese liquidity through HKEX. Benefits to HKEX in the beginning will be limited given the initial quotas on residents and limitations on products.

Hong Kong Exchange & Clearing – Making The Connection

*Glittering Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 1Q21 earnings of HKD 3.8 bn, improving HKD 915 mn (31.3%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 363 mn or 43.8% linked quarter) – increasing HKD 1.3 bn (61.0%) to HKD 3.4 bn. Results were highlighted by HKEX’ positive operating jaws, as recurring revenue increased HKD 1.2 bn (28.6%) while operating expenses declined HKD 194 mn (14.5%) over the period;  and*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center.

*Glittering Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 1Q21 earnings of HKD 3.8 bn, improving HKD 915 mn (31.3%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 363 mn or 43.8% linked quarter) – increasing HKD 1.3 bn (61.0%) to HKD 3.4 bn. Results were highlighted by HKEX’ positive operating jaws, as recurring revenue increased HKD 1.2 bn (28.6%) while operating expenses declined HKD 194 mn (14.5%) over the period;  and*Risks Are Increasing: In addition to an extended valuation when ADT has begun to turn and having a new CEO with no exchange experiences, HKEX needs to contend with the government’s examination of a stamp duty increase and mainland China’s contemplation of a new stock exchange to attract overseas-listed firms (including Hong Kong) which will bolster Shanghai’s status as a global financial center.

Hong Kong Exchanges & Clearing – Golden Quarter, But Risks Are High

Japan

Japan Exchange Group Inc is the holding company created through the merger of Tokyo Stock Exchange Group, Inc and Osaka Securities Exchange Co., Ltd. The group provides and operates a marketplace for the trading of equities, futures, and options. The Group manages the trading, as well as administers listed stocks and registered members.

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Japan Exchange Group (8697 JP)

Singapore Exchange - Another Deal, Another Distraction

SINGAPORE EXCHANGE: SGX announced that it was acquiring MaxxTrader for USD 125mn plus, its third acquisition since 2020. Numerous bolt-on deals...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Take It When You Can Get It

HONG HONG EXCHANGES & CLEARING: Mainland China is planning to exempt listings on HKEX from seeking CAC approval, as Mainland IPOs are subject to...

Thomas J. Monaco

Singapore Exchange – Peripatetic

SINGAPORE EXCHANGE: SGX held an Analysts’ Day which discussed various aspects of its business. Management appears to be scrambling to offset...

Thomas J. Monaco

Hong Kong Exchange & Clearing – Making The Connection

HONG KONG EXCHANGES & CLEARING: Mainland China’s financial regulatory authorities released a consultation paper on WM Connect, an avenue to bring...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – Golden Quarter, But Risks Are High

HONG KONG EXCHANGES & CLEARING: HKEX 1Q21 operating earnings increased 61.0% QOQ, highlighted by positive operating jaws. HKEX needs to contend a...

Thomas J. Monaco

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