YWR: 6YR Asian Bull Market
Disclosure: This is absolutely not investment advice!
We’re all in on Asia.
This is the GFC of China and we aren’t going to miss the post crash bull market (Trying to be more like Australia Dave).
No. Our sword is buried to the hilt.
Let the naysayers debate each other with snarky comments on Twitter. We are here to make money.
We started April last year with China tech and the Cash Dragons.
But that wasn’t enough.
We needed the ultimate beta play, even if it looked expensive and required some imagination.
We needed the Asian stock exchanges, HKEX and SGX. We added HKEX in October (HKEX our China FOMO Play) and SGX in November (SGX, an Exchange Masterclass).
Our view: Investors will underestimate the extent of the Asia bull market, how many years it lasts (through 2028), and the earnings leverage in these exchange businesses. And if for some reason we are wrong, they are still high quality business we want to own, with massive free cash flow.
So this is a quick update following the recent 2024 results.
YWR Earnings Estimates Updated vs Prior and Consensus
Links to my updated models are at the bottom of the post, and also available under the YWR Data & Model tab.
Summary of Estimates
We increased our #’s for SGX following the December 2024 (1H 2025) results. SGX has a June 2025 year end.
SGX June 2025 goes from 57cts to 60cts and 2026 from 67cts to 71cts.
Great cash and derivative growth with amazing expense control, just +3%.
HKEX beat consensus numbers for 2024, but compared to what I was looking for revenue was weaker than expected (just +9%).
HKEX made my EPS estimate (10.3) on lower tax.
Derivative revenues came in flat despite 18% volume growth due to fee reductions offered to grow revenues. There were also special offers on derivatives margin balances which led to lower net investment income than I expected. Together these hurt my derivative revenue assumptions for 2024 and going forward.
We cut our HKEX 2025 EPS from HK$ 14.3/share to 11.9 and 2026 from 16.8 to 13.9. We were wildly above consensus. Now less so.
Consensus Estimate Trend
True to our view consensus earnings estimates are rising rapidly. But notice the tightness of the 2025 to 2027 estimate lines for both SGX and HKEX. Every year sell side analysts are expecting 5-10% EPS growth.
Lame.
I’m saying from past experience that in a proper bull market there will be years with 20-40% EPS growth.
The Bull Market Ahead
I don’t know the exact timing and magnitude, but I’m betting the 4 year EPS growth for HKEX from 2024 to 2028 is not going to be 26% ($10.3 to $13) or 18% for SGX (0.55 to 0.65).
If this repeats previous Asia bull markets (such as 2002-2007) the earnings growth will be multiple X’s. The equity market cap of both markets will rerate higher, plus earnings growth, plus higher trading volumes in equities and derivatives as investors globally realise they are too overweight the US and missing the new bull market.
I said this was going to take some imagination.
In the chart below the solid line is what happened to EPS from 2002-2007 for HKEX, while the dotted line is my already above consensus prediction through 2028.
Same chart for SGX.
And by the way, HKEX pays out 90% of earnings in dividends, and 60% for SGX.
Asia Capital Markets Developments.
The cool thing is neither SGX or HKEX are sitting around waiting for a bull market. They’re heavy on business development.
SGX is building its role as the risk management hub of Asia. They are growing their FX derivatives business with increased trading of RMB/$ and INR/$ and KRW/$ contracts.
SGX is also the place to go to trade Asian equity futures. The GIFT Nifty 50 is an Indian equity future, so they’ve got all the big, growth markets covered.
Hong Kong always has a stronger equity market with more growth, because they benefit from Chinese IPO’s.
HKEX is strengthening its position as a China gateway where international investors go to to trade local A-shares (Northbound Connect) and where Chinese investors go to trade HK shares (Southbound Connect). These Stock Connect volumes exploded higher in Q4 as investors used HK to trade China A shares.
Northbound and Southbound related revenues grew +24% in 2024 and now make up 12% of HKEX revenue.
There is also a shift of China ADR trading from the US to HKEX. This shift to Hong Kong will likely increase in 2025 following the America First Investment Policy.
Below are links to the update models. Use the March 2025 tab. I keep tabs with my prior estimates so there is no memory holing. It’s important to track how our view is progressing.