The Zhitong Finance App learned that CICC released a research report stating that net profit due to the Hong Kong Stock Exchange (00388) in 2024-2026 is estimated to be HK$121.24 /131.63/HK$14.133 billion, respectively, with corresponding growth rates of 2.21%/8.57%/7.37%, respectively. The policy dividend period is superimposed at the bottom of the cycle, which is optimistic about the development prospects of the Hong Kong Stock Exchange. As a global capital exchange hub, the Hong Kong Stock Exchange fully enjoys the policy dividends of deepening the opening up of domestic capital markets based on a “scarce track+light asset” operation model. It is blessed with excellent exhibition conditions, and the interconnection mechanism with emerging capital markets has been continuously improved, and there is still considerable room for medium- to long-term growth.

According to the report, on April 19, 2024, the Securities Regulatory Commission announced that it will deepen cooperation with Hong Kong and take 5 measures to further expand and optimize the Shanghai-Shenzhen-Hong Kong Stock Connect mechanism:

1) Relaxate the scope of eligible products for stock ETFs under the Shanghai-Shenzhen-Hong Kong Stock Connect to facilitate foreign investment in the domestic market. The Securities Regulatory Commission will relax the scope of eligible products for stock ETFs under the Shanghai, Shenzhen, and Hong Kong Stock Connect, focusing mainly on indicators such as management scale and tracking index component weight. Currently, the size of the Hong Kong ETF market is rapidly expanding. The annual ETF turnover increased from US$1.7 billion in 2003 to US$435.1 billion in 2023, with a compound annual growth rate of 32%. The expansion of ETF connectivity is expected to deepen the capital market ties between the two places.

2) Integrate REITs into the Shanghai-Shenzhen-Hong Kong Stock Connect to enrich interconnected investment categories. Since its launch in 2014, the interconnection mechanism has continued to be improved and optimized, and transaction categories have been continuously expanded. The inclusion of REITs this time is another important process in expanding the scope of connectivity investment.

3) Support the integration of RMB stock trading counters into the Hong Kong Stock Connect, which is expected to promote the internationalization of RMB in the long term. Currently, the dual counter model is still in the early stages of development. As of April 30, 2024, the total daily turnover of 24 dual-counter approved securities was only RMB 0.4 billion since its establishment, accounting for only 0.79% of the HKD counter. The inclusion of dual counters in the Hong Kong Stock Connect is expected to have limited short-term impact on liquidity, and will help promote the internationalization of the RMB in the long term.

4) Optimizing mutual fund recognition arrangements is expected to drive a gradual increase in sales scale. Currently, there is a remarkable phenomenon of “South Cold North Hot” sales. As of March 2024, the cumulative subscription amount for Southbound and Northbound Mutual Recognition Funds was RMB 97/25.61 billion, respectively. With restrictions on mutual recognition fund sales ratios being moderately relaxed, the broadening of cross-border investment channels is expected to drive up the scale of sales.

5) Support leading companies in the mainland industry to go public in Hong Kong, and give the Hong Kong Stock Exchange IPO market more new opportunities. The current performance of the Hong Kong stock IPO market is poor. The IPO volume in the Hong Kong market in 2023 was HK$46.3 billion, down 56% from the previous year, and 88% lower than the high point in 2020 when a large number of Chinese capital stocks returned to Hong Kong stocks. Promoting the listing and financing of high-quality mainland enterprises in Hong Kong is expected to directly drive the increase in the size of the Hong Kong IPO market. At the same time, it will provide rich and high-quality supply to the Hong Kong stock secondary market, and to a certain extent drive an improvement in liquidity.