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September 09, 2007

Hong Kong Stock Exchange is Smoking Hot - Stock Up 10x over past 2 years

posted by MR WAVETHEORY at 9/09/2007 10:46:00 PM


The Hong Kong Stock Exchange and Clearing Corporation is smoking hot. The chart shows that shares are up about 10X in the past 2.5 years up from around 15 HKD to over 185 HKD today. Shares of Hong Kong Exchanges and Clearing Ltd. (hkeX) (HK:388 185.20, +27.20, +17.2%) , operator of the local stock market, surged more than 17% to a record Monday after the Hong Kong government disclosed Friday it has become the largest shareholder in the company. The Hong Kong government said Friday it has expanded its holding in the bourse operator to 5.88% and will hold the stake in its Exchange Fund. Analysts said the enlarged share holding may reflect the government's interest in becoming more involved in the daily operations of HKEx as the local stock market strengthens ties with financial markets in the mainland. Shares of HKEx rose 17.2% to a record HK$185.20 at midday, bringing its year-to-date gain to 73%.

The craze over stock exchange stocks has clearly taken over this particular stock. The Hong Kong Exchange has a market cap of 198 billion HKD which is rougly $20 billion. The P/E multiple is 50x earnings. There are more headwinds in this story than most people see. One particular issue is that Beijing is discouraging the largest and best companies in China from listing in Hong Kong and instead encouraging them to list in Shanghai. That's why Bank of Beijing is listing in Shanghai (Xinhua) instead of doing the traditional dual listing - first in Hong Kong and then in Shanghai. Its 15 billion yuan IPO was supposed to be done in Hong Kong but regulators did a convincing job of preventing that from happening - simply by denying them the license. Anyhow, the winds are blowing a different way now.

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