Hong Kong Exchanges and Clearing Limited (0388.HK) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to HKEX 2020 Annual Results Analyst Presentation. Today, we are very pleased to have our interim Chief Executive, Calvin Tai; our Group President -- our Co-President, Romi Lamba; and our group CFO, Vanessa Lau. We will talk about our key highlights of 2020, our financial performance as well as strategic and business updates. We will then open the floor to take your questions either via webcast or audio. Without further ado, over to you, Calvin.

Thank you, Ricky. Well, thank you all. Good afternoon, good evening, good day. I think today, it must be a very busy day for all of us. Well, I'm very pleased and proud here today announcing the results for HKEX year 2020. It's a set of very strong results we would like to share with you. Well, this is a very difficult year, unusual and also extreme volatility, especially during March 2020. I think the -- well, all our stakeholders, our market participants and my colleagues actually had done a very good job. We survived all the turmoil and volatility and all the challenges unprecedented, and we managed to get a set of very good results. We are very pleased and proud. In terms of financial performance, if you look at now Slide 4, there's a set of record that -- I don't want to run through them one by one, but just want to highlight a few. Record year for 3 consecutive years. I think this is something we hope we can -- well, we believe we will continue work very hard and keep the record. Revenue and income, $19.19 billion. Core business, up by 24%. Largely -- well, biggest contributor to that is trading and clearing fees in cash market, driven by the record average daily turnover. Auto Connect program, both Stock Connect, Bond Connect, performed well. Stock Connect contributed roughly 10% overall -- of the overall revenue, which has been growing very fast and very promising. Net investment income down 18%, given the investment backdrop. And also, we're comparing to a record year in 2019 in terms of net investment income. So I think Vanessa would give more highlights explanation on -- elaboration on this front. Profit attributable to our shareholders is record high, $11.5 billion, 23% up year-on-year. In terms of business from various perspectives, you look at it, very strong IPO market, #2 globally and #4 -- #2 in terms of fundraise, HKD 400 billion or USD 50 billion. And I think it's -- well, the highest in last decade. So very, very strong, promising. And the other thing is about the Connect schemes that I also highlighted just now. It's both ADT actually is record, both Southbound, Northbound. I think that's very promising in both direction, not just single direction. In terms of derivatives and also structured product, we have a lot of new products, 38 MSCI contracts, futures and options. Futures first and then subsequently followed by options coming up very quickly this year. And while that is a continuation of making ourselves the risk management center for the region. For LME, it's a pretty challenging year, especially for the metro market near the real economy, which actually has a lot of challenges comparing to the financial market. While proven to be very resilient and very adaptable to the difficult and changing environment, very successful year in managing the situation, migrating from the Ring to electronic pricing, preserving the function of the price discovery for the global metal market. Very well done job for the team. One more point I want to highlight here before I pass to Vanessa is about the Sustainable and Green Exchange. We call it STAGE. Well, this is the first Asia multi-asset, sustainable investment product platform. We already got over 40 green bonds listed on here. And also, HKEX formed a foundation for our charity purposes. So more information on the financial aspect will be provided by Vanessa. I pass on to you.

Thank you, Calvin. Good afternoon, everyone. Thank you for joining us. I'm Vanessa Lau. I would now like to share with you our HKEX full year 2020 financial results. HKEX had a strong year in 2020, and we are very pleased to report record financial results for the third consecutive year. Total revenue and other income was up 18% year-on-year to $19.2 billion. Our core business revenue was up 24% year-on-year, driven by record headline ADT of $129.5 billion. Net investment income fell by 18% versus the record investment income in 2019, reflecting the performance of the global equity and bond markets and the low interest rate environment. EBITDA margin was strong at 77%. Profit attributable to shareholders, EPS and dividend per share all reached record highs, with profit after tax of $11.5 billion, up 23%, and EPS and dividend per share up 22% from 2019. Turning to the next page on our detailed financials. Our core business showed strong growth versus 2019 for both revenue and profit. You will see that, effective July 2020, donation income from the stock code balloting charity scheme was received by the HKEX Foundation. And the amounts previously paid by the issuers directly to the Hong Kong community chest were paid by the Hong Kong HKEX Foundation. As a result, donation income of $106 million and charitable donations of $112 million were recorded under income and OpEx, respectively. Excluding foundation charitable donations, OpEx was up 8%, mainly driven by higher staff costs, IT costs and professional fees. EBITDA margin reached 77%, up 2% from 2019. I would point out that transaction-related expenses, which were previously included in OpEx, are now presented under a separate line below revenue and other income to better reflect the nature of such direct costs. Moving on to the next page, where we look at Q4 results versus Q3. Headline ADT was the same across the 2 quarters, but Q4 profit after tax was 13% lower than Q3 due to fewer trading days, lower Northbound ADT and higher OpEx, including our year-end compensation. This is seasonally consistent with the previous years. Moving on to look at the trend line. We have been generally trending up over the last 5 years on both revenue and profit. Q2 to Q4 this year has been significantly above this historical trend line. This reflects the resiliency of our core business, the foundations laid in the diversification of our business throughout the past few years and the continued growth in our Stock Connect program. Our cost discipline has also been strong and has helped us maintain an attractive EBITDA margin. Next, we take a look at the year-on-year performance of our operating segments. You can see that all our business segments achieved higher revenue year-on-year, largely driven by the higher ADT. I would highlight 2 particular drivers, which continued to show significant growth. Firstly, Stock Connect volume continued to achieve new records, with Northbound and Southbound ADT more than doubling that of 2019. As a result, Stock Connect revenue reached a new record high at $1.9 billion, contributing to 10% of our group's total revenue and other income in 2020. Secondly, listing fees were up 16% with 154 new company listings in 2020. And additionally, the number of newly listed DWs and CBBCs reached record highs. Corporate items were down because of lower net investment income, partly offset by the HKEX Foundation donation income. Net investment income, as you can see, was $2.2 billion versus $2.7 billion in 2019. Net investment income comprises of internally managed corporate funds, margin and clearing house funds, and a noncore actively managed external portfolio. The internally managed funds were down by approximately $200 million year-on-year due to lower interest rates, but partly offset by higher fund sizes. The external portfolio made a gain of $487 million after a year of heightened volatility. However, when compared with a record gain of $789 million in 2019, the portfolio was down $300 million year-on-year, partly attributable to lower fund size. That said, the portfolio has generated an overall gain of $1.8 billion since its inception in December 2016, representing a 6.7% annualized return. Lastly, let's take a look at our operating expenses. Excluding foundation charitable donations, which I have already mentioned, OpEx was up 8%, reflecting our investments in talent, technology upgrades and strategic projects, including our acquisition of BayConnect in June 2019. So reflecting on the full year of 2020, we are very pleased with overall performance. Our core business continues to show resilience against a volatile and uncertain macro and geopolitical backdrop, and we have made considerable progress on our strategic objectives. We believe Stock Connect will continue to be a key revenue driver, as will the strong IPO pipeline, with more new economy companies and homecoming secondary listings. We are well placed to capture future growth opportunities, and we will, of course, continue to focus on managing our costs and risks. It has been a challenging year for HKEX staff, but also for many in our community, and we are very grateful for the continued support of all our stakeholders. With that, I will hand back to Calvin for our business and strategic update.

Thank you, Vanessa. If I can move to Slide 14 of the deck. Well, we see very strong results, and we would like to share with you in our view the biggest and most important growth drivers in our business. Well, there are 3 items here. Number 1 is about the emerging, fast-growing new economy sector in our market. The second one is relating to the continuous strong capital inflow and also investment interest into the mainland capital market. Third one is a very interesting observation, starting from last year: structural shift actually seeing Southbound capital flowing into Hong Kong market, very steady and very strong. So if I can elaborate my point, if we move to Slide 15, the next one. So the new economy sector, we're referring to all those tech stocks and biotech stocks. If you look at it at the left-hand side, the bar chart, the lighter color portion, the yellow and also the light blue, you can see that for capital raised in terms of IPO coming through in the past few years has been very strong, steady. And the importance of the new economy sector has become very, very significant. On the right-hand side, well, we try -- we use HSI, Hang Seng Index, as the measurement of the whole overall market in Hong Kong. And we use Hang Seng Tech Index as indicator of the new economy performance, share price performance. So, well, you can tell, in particular last year, well, the obvious differentiation between the 2 is recorded. So that explains very much to -- in terms of the share price performance. But also, if you look at the second part on the right-hand side, the lower part of it, we want to highlight to you the turnover velocity change. While from 2017, 55% move to 2020, which is 65%, which is a very important change, we believe, is a fundamental change in our market. And that -- well, derive into the cash ADT change, combining with other factors, of course, while moving to 129%, 47% higher than 2017. This is something that I think is very phenomenal. Well, the other thing I want to quickly go through is, instead of go through line by line, item by item, you can see that. Well, on Slide 16, we have a series of record, very strong performance in the cash market. Derivative and FIC market actually recorded growth across the board as well. Well, you may see that LME has a chargeable ADV down 7%, but in balance, offset by the increase in fees that we applied at the beginning of the year. Overall speaking, well, we have a positive growth in our LME business. IPO, very strong. Well, I think again, #2, IPO fund raise last year, USD 50 billion. Interesting part is 16 jumbo IPO. Well, when we call jumbo IPO, we refer to those raising over USD 1 billion. It contributed -- these kinds of IPOs contributed a lot to our secondary trading market. 24% of our cash ADT actually is contributed by those 28 jumbo IPOs listed since 2018. So it's a very significant portion, almost 1 quarter. And in the Connect scheme, as I said earlier, if you look at the numbers, both Northbound, Southbound and also Bond Connect, all recorded very significant growth. If we can move on to Slide 17 and 18, these 2 -- for those -- many of you, I think you followed our company and our strategy, you would be very familiar with the 3 pillars that we talk about: China anchored, globally connected and technology empowered. While China anchored, very obviously, Connect is the shining point, and we have expanded the Stock Connect, included more stocks, more different types of stocks and also increased the Stock Connect access. One point I want to highlight here is about the Mainland annuity funds. While investment scope has included Southbound Stock Connect, which is a very important change to us. #1 is institutional client from mainland accessing Hong Kong through Southbound Connect. And Annuity fund, as you're very familiar, actually, is the type of fund that continuously having money inflow and continuously actively looking for investment opportunity. So we hope and we believe this type of funds will become a steady and also long-term support for our Connect for the Southbound. The other point I want to highlight is our capability in Mainland onshore. While we have a minority investment in Guangzhou Future Exchange, which is -- we announced very recently, we become the very first offshore organization having shareholding in Mainland Exchange. This is a breakthrough. That is the shareholding front. I think that's a very important development for us to work with this new future exchange in their future business. And also it's located in the Southern part of China, while Greater Bay Area is the development area and one of the mandate that Guangzhou Future Exchange is high on the agenda as green and sustainable futures business. So this is an area that we would like to explore ways to work with Guangzhou Future Exchange to develop this in the Greater Bay Area. So for the globally connected, you can see all the IPO activities that we go through. And also, we have -- well, interested, well, non-Hong Kong, non-Mainland issuers were interested to join us, especially in the biotech sector. And in terms of product ecosystem, we highlighted the MSCI contracts, which is a very strong indicator of our determination to get into the Asia and emerging market, the risk management center ambition. So this is something that's ongoing journey that we will continue to put a lot of emphasis and resources in it. So for the market micro structure matters, I think for Hong Kong is a continuous exercise. For London, I think one important change is about the Ring. There's a discussion paper out there. Well, we are actually engaging the market while to make a decision on the future of the Ring. Right now, electronically, while we can perform the same price discovery function for global metal market and very effectively. So I think that is one potential change that we want to make together with LME's participants. For technology front, just quickly highlight, we're interested to engage the market to shorten the IPO cycle. There's a project that we're going on -- we're discussing with the market. We call it FINI. So we haven't made a final decision yet, but this will be a new infrastructure built on top of the secondary trading. We connect ourselves, entrench deeper into the IPO process and all the relevant participants in -- during this process. Project Synapse. Some of you have maybe heard of it before. I think the most important thing is this is a project expanding our footprint into the post-trade area. For the settlement amount fund managers, and also securities, brokers, clearing brokers, together with their money payment. So the technology we are adopting is actually a smart contract concept, very close to DLT, very close to blockchain. And if we decided to adopt it, we can easily move into that. So it's a very important project in terms of business and also in terms of new technology to be used. Well, we're using robotic, AI, improving our operational efficiency, so I won't elaborate into that unless there's question and interest in it. Another area that we will put a lot of emphasis on is the sustainable financial area. We would like to build an ecosystem. I mentioned about STAGE. I think STAGE is, well, the first multi-asset sustainable instrument product platform in Asia. We're the first one setting it up, and we already attracted bond issuers utilizing this platform. Listing also enhancing all the guidelines for listed company in terms of ESG reporting. I think these are the foundation infrastructure that we can build and we can facilitate issuers to improve the green and sustainability capability and also a platform channels that they can prove to their investors that they have done a good job in this area. So the other thing is London, which is the metal market for the delivery and also the physical market is very -- some of them have very heavy carbon footprint. We are working with London, engaging the market to find ways to reduce their footprint, not just in Asia, not just in Hong Kong, but also in London and also other parts of the world where the warehouse sits. Okay. Very quickly, go forward. Looking ahead, January, very strong month for us; February as well. Well, we made a few record ADT in February. Today is another record. We have a very strong and good start. IPO, very strong pipeline. If you just look at the A1 filing, it's already a very long list. We anticipate a very busy year for our IPO business and our listing colleagues. Connect. Well, as I said, there's a fundamental change, and we believe it's sustainable and the North and Southbound will continue to grow, and we will continue to add new companies into it. So macro picture is a COVID recovery. We see positive signs. I think globally, we should hope for and expect, with good reason, justification to expect a better year. People mobility will improve. Economy, real economy, will have a chance to pick up. However, the interest rate environment, that might affect our investment income, but also, I think the low interest rate environment may create a bubble. I think people are warning us. There were some warning flying around. So I think as a clearing house risk management center, we do get ourselves -- well, be ready for stormy days as well. I think that's the preparatory work we will make ourselves ready for. Okay. The other thing is, well, maybe the last thing I want to highlight in this slide is about the CEO designate announced. Well, I think Gucho recommended and actually picked and appointed by the Board, and we are pending for the SFC approval. And once the approval is available, we will announce and we will work together with Gucho, when he on-board, working not just on this year's plan, but also on our next 3-year strategic plan. So I -- maybe I end here. I think Romi and Vanessa can help me to answer any questions that all the analysts might have. Thank you.

Thank you, Calvin and Vanessa. Now we will start taking some questions from you. Moderator, please explain the instruction for the Q&A. Thank you.

[Operator Instructions]

Thank you, moderator. We will take the first question from Richard Xu from Morgan Stanley.

Congratulations on the very strong results. I'm sure everybody probably want to ask the same question as well. So I'll probably just go ahead. Obviously, we've seen the stamp duty tax hike today. I just want to know whether basically, management was consulted for this change. And any insight in terms of what's behind the change? And going forward, whether there could be other changes either up or down? And what divisions might impact those changes? Maybe I'll just go with that question first.

Well, thank you, Richard, for the question. The answer to your question is very simple: we were not consulted. We received the information at the same time as you do, and there are some speculation earlier on. But -- well, I think it's a very choppy day we see in the market. So while there's no insider terms; we were not consulted. It's not a negotiation. So I think the most important thing that we -- well, honestly speaking, we're disappointed with this government move, but we fully understand why they choose to do it while raising the stamp duty. Overall speaking, the stamp duty plan, we have subsequently checked with the government, what's their plan in terms of timing. I understand their process. They need to go through legislation that would only happen, the soonest is in 1st of August. So whether this is the timetable they're working on, I think we can double check with the government. So it's not happening tomorrow, but there's some time to -- for preparation. In any case, I think, well, we look at our market. I think our markets' robustness and also the activity largely is due to various drivers that I shared with you. Not just cost related. So the way I look at it is there are many reasons to continue to support our market and to continue to support our business on the expansion side. So I don't know what is the standalone impact of the stamp duty, probably -- you guys might have better models than I have. I don't have a crystal ball. But so I know there are diverse views already, so nobody can tell. But I think the most important thing is to beef up our market, getting more positive factor into the Hong Kong market, maintain Hong Kong's competitiveness in all front and also making it as an attractive international financial center. So I sound like I'm preaching to the media, but for analysts, I think the way we look at it is I'm not just looking at one single factor. If we want to make our market successful, we need to look at the quality of the company, whether it's interesting or value for investment. I think that's something that we should look at. I think Romi can chip in as well.

Yes. If I can just add, I think as we've mentioned before, that we don't really have the high-frequency traders in Hong Kong, partially because even the 10 basis points stamp duty was too high; partially, we have a single platform. Where we do see the algo and prop firms participate is in those products that don't have stamp duties, such as ETFs and our derivative suite and so on. And so from that perspective, when you look at the overall cost of trading in Hong Kong, depending on whether you're looking at retail or institutional, whether you're looking at including spreads, only of the cash outlay. This change is obviously unfortunate, but I don't think it's going to move the dial to discourage the broad suite of traders who trade in our cash market.

Thank you, Calvin, and Romi. Now we move on to the next question from Yafei from Citi.

I just follow-up on the stamp duty question. Do you think this is going to be a one-off change or it's possible that we might see further hikes some time down the line? So that's the first one. Second is that we've seen very strong trading volumes starting from beginning of the year, which deviates a little bit from the very long-term trends that we have seen in the past. Would it be possible to break it down to some of the structural drivers that you mentioned in the presentation? And is there any one-off or liquidity drivers that you might wanted to highlight as well?

Well, I think for the stamp duty question, whether it's one-off or not, I'm not the FS. I don't have the power to decide, and I don't think it's an easy decision. Well, so we are hopeful. And I can't speculate, but yes, let's focus on where we are today now. Well, the strong volume, I don't know how much we can dissect into it. I think 25%, almost 1/4 from the tech stocks or the new economy, I think it's already 1 and very important significant driver that I think we shared with this group. The other thing is about the overall sentiment. I think we believe the overall sentiment definitely is something very positive. Well, bring -- they contribute to the strong volume. And I think I can understand your question because the -- January comparing to the full year, actually, the percentage of increase in the ADT is actually very, very strong. So I think that's got to be multiple factors to it. I don't think I have full information to answer this question. Whether it's sustainable, we don't know. I think that's one area that we believe in terms of the level of our market, we believe it already fundamentally -- there are some fundamental change in the -- I mean, compensation of the activities in our market. So as I mentioned about the Connect, I think Northbound, Southbound, both very strong in the Hong Kong market. The Southbound, actually, even though we account for half of the movement, but actually contribute to liquidity in our market. And I think the concentration in trading in the top and big stocks very much is a reflection of trading opportunity arises when liquidity improves. So I think that's all I can share with you.

If I can just add, there are some slides in the appendix that I would refer you to. Slide 25 highlights the fact that Calvin mentioned the 24% of our current ADT in 2020 -- sorry, not right now -- is coming from the jumbo IPOs over the last 2, 3 years. Another factor on Slide 26 shows that the float coming from some of the secondary listings is not just at the time of the IPO or the placement, but has picked up significantly as you see the DRs convert into Hong Kong shares. And finally, if you look at Page 29, which talks about Southbound, not so much the volumes of Southbound, but the availability of capital focused on the Southbound. And you'll see there was a dramatic increase up to, if I get this right, RMB 2 trillion of eligible funds that can come into Hong Kong. I think combined with the strong renminbi currency in the last couple of months, as well as the whole new economy story here, it's become a very attractive venue for Southbound investors.

[Operator Instructions] So next question, we will have Gurpreet from Goldman Sachs.

I have two, if I may, please. And sorry again to hop on the same issue. First is, can you, by management action, or is there any plans that we can look out for, by reducing the impact cost? The change that the government has made increases it by 3 basis points around [indiscernible] 6. But then as I see the bid/ask spread for most of the stock here in Hong Kong, just gathering data from publicly available sources, is still very high compared to other jurisdictions globally. So can you, by doing some tick size reduction, I know previously, there have been consultations, et cetera, try and cushion the impact of this by lowering it? And my second question would be, how do you think about your potential issuers, the strong pipeline you're quoting and the potential investors, especially in the ADR space, would think about this move and then think about whether they want to hold, for example, Baba shares in New York or in Hong Kong?

I'm not sure I get all the questions. Maybe Romi, you can help me out. I think the first question is about, well, whether there's any actions that counterbalance the government's act. I think we all know in Hong Kong, transaction costs, if you talk about formula-based transaction costs, the government stamp duty actually accounted for a most significant part of it. Now it's at 30%. I think we can talk about reducing the other components of the defined transaction costs, but I don't think that would have significant impact. The more important point I want to highlight is one of the key topics when we talk about transaction costs in every single market, I think it's the market impact. And also, we're talking about the liquidity of the targeted stock that you want to trade. These are more important factor, I think, in terms of institutional investors coming to the market. I think there are a couple of things that I want to highlight that we -- in the infrastructure side, we made the changes, and we had made our market more efficient, reducing those costs. If you look at the closing auction, I think the closing auction now has been functioning very well. And actually, the execution certainty and the market impact has been reduced by that. And also, if you look at the trading volume and the velocity we highlighted, our market actually has improved in this area in terms of open market execution. The kind of friction and the cost market impact we believe has already reduced. So I think these are the circumstantial factors that actually is not as apparent, but actually contributed to a significant part in terms of transaction costs. I think these actually has improved in our view. So I think that's the first point I want to answer.

I can take the second. Obviously, it's difficult to predict what impact this change may have. As far as the issuers go, I don't think it's going to change their mind because anyway, the cost of trading in Hong Kong is much higher than trading in the U.S. So 3 basis points should not change their mind. As far as investors go, again, I refer you to Slide 26, particularly the table on the left, that shows the percentage of trading happening in Hong Kong today for these 3 stocks, and it far exceeds the initial float that came here. And I think you have to probably dissect the investor base a little bit. In the U.S., as you know, maybe 1/3, sometimes 1/2 of trading volumes come from the pinging high-frequency traders. Those guys were never going to come to Hong Kong anyway. And a lot of the people who trade or hold the secondary listings in Hong Kong are doing it because not over costs, obviously, but because they want to trade it in the Asian time zone, they want to trade the stock when the news flow here is most active rather than when the companies are asleep, so to speak. So it's -- I don't think it's going to have a major impact, this particular change, in terms of the behavior of investors.

If I add to that -- thank you, Romi. I think this is a very good slide to answer all those questions. I think one thing as a whole when the secondary -- this kind of secondary listing coming to our market. As a matter of fact, they're not just having a secondary listing for trading. And well, in our interaction with this company, many of them actually has a anticipation of their shareholders will be moving their shareholdings into Hong Kong. So that's why there's a -- well, the trend or the numbers that we see on the right-hand side of the slide, it's not a surprise for us; it's anticipated. It is important in both -- I mention both, Number 1 is the secondary trading need. Well, that -- once they move the stock here, trading naturally will take place here. The other thing is about the clearing and settlement fee that we charge. Sorry, I mean the depository fee and corporate action fee that we would charge, one of the important revenue base for us. So this kind of migration actually contributing to our post-trade business.

Next question, we will have Wong Chi Man from China Galaxy.

I have two questions. One is about -- actually, related to the stamp duty. Because management just mentioned, because of the stamp duty, Hong Kong, anyway, is not a hub for high-frequency trader. But I'm not sure whether there is an estimate, for example, like in 2020 for the ADT, how many percentage, for example, like maybe 10% or something like that, is from high-frequency trading? I'm not sure whether there is some estimate on this. The second question is I noticed that during the budget speech today, the government mentioned a few items for the Southbound Stock Connect. The government mentioned a target within this year, and I also mentioned the other 2 items. One is the MSCI Asia futures, the other one is ETF Connect. But the budget speech did not mention about the timetable. So I'm not sure whether there's updates about the potential schedule.

Okay. Why don't I take the first question? I think we don't have an exact number. It's because we don't have user ID here, investor ID, so we can't see through to the end user traders. However, what we do know is in our derivatives market, the algo and prop, not necessarily high-frequency traders, probably account for a pretty significant part of the market. There's no stamp duty, and they get market-maker incentives and discounts. And so maybe 40% plus of our derivatives market comes from those kinds of traders. In the cash market, the number I would probably throw out is maybe 10%, but that doesn't mean it's high-frequency traders as defined as the flash boys. It's really probably more the quantitative trading strategy of more traditional fund managers that increasingly are using quantitative strategies to trade. So -- and those are not as cost-sensitive as the high-frequency traders. So let me stop there.

Okay. I want to supplement the, well, response to the first question and also answer the second question. For the first question, we talk about the high-frequency trading and also stamp duty impact. One thing I want to highlight, in our market, there are structured products, including the CBBC and also the derivative warrants. Well, actually contributing to a significant part in our cash trading market, but there's no stamp duty. So I think that's one part of it. And certain ETF also does not attract or stamp duty as well. So these are the areas that we have worked with the government and tried to alleviate, well, the stamp duty burden on some of the product. So I think these are the areas that we should pay attention to as well. The other thing -- the other question is about the government's address, basically saying the ETF Connect and also Asia Index Futures. I think this is in the public domain that we've been working on this initiative together with our stakeholders, both in Hong Kong and also in mainland. We -- we're still working and expect and hope to get the regulatory approval. We don't have a timetable, but ETF Connect is definitely one thing and Asia Index Futures as -- well, I think the address also made it very clear. That is -- there are increasing demand for hedging instrument for a risk instrument. I think we have all the good reasons to work on this. And we are optimistic, and we're diligently working on it. Once we have a clear timetable, we will announce and let you know.

Thank you, Calvin and Romi. I think we have time to undertake one more question. [Operator Instructions] Okay. We have a follow-up question from Gurpreet.

This is for Vanessa more. That double-digit cost growth and then kind enough from your side to highlight that it's only 8% at the underlying level, looking at backward looking strong revenue. But how do you budget now going into this year, which has obviously begun strong and there are all the uncertainties. So what kind of a cost growth are we expecting? That's one. And then if I can have a small ticky follow-up, and similar one for Vanessa. On the investment book, the book that is given to external asset managers and one which last updated was HKD 7 billion. So can you help us think through the impact in the first quarter? Bond prices seem to have fallen, so should the investment income be suffering Q-on-Q because of that?

Thank you, Gurpreet, for your two questions. The first question on our operating expenses, which grew by 8%, excluding the impact of the HKEX Foundation. The way we look at our OpEx is that we are a growth company, so we do need to continue our investments, and in particular, in 2 key areas, being talent and IT infrastructure. So as our business continues to grow, and actually we diversify our product ecosystem, have new strategic initiatives, you can expect that we will continue to invest in these 2 key areas. And in particular, in IT infrastructure, we will continue to invest in programs like next-generation or over at the LME, big 2 projects, including upgrading their trading platform, event streaming, et cetera. Because all of this is important to ensure that we have operational resilience. And we also spend a part of our OpEx on new technology, which will help us automate or digitize and enhance our process efficiencies. And at the end of the day, we don't have a mandated margin. We try and look at everything in balance. So the absolute dollars of OpEx, the OpEx growth versus prior years and of course, the EBITDA margin. And our cost discipline is reflected in our very attractive EBITDA margin, currently at 77%, which is 2% higher than previous years. So we're comfortable with that approach and will continue to drive our investments in the critical areas. On your second question regarding our external portfolio, the current market value is around HKD 7.5 billion. And your question about the impact of, for example, bond price changes, on this portfolio. What I can tell you is that our external portfolio is structured in a way that is very diversified. So we have 25 fund managers in the portfolio, spread across 4 asset classes. And I think you can take comfort from looking at how this portfolio has actually performed over the last 4 years, right, of track record. So even during March last year, when the global equity market saw heightened volatility, and you can see on the chart that we're going to put up, even during March, when we -- when this portfolio, like any other portfolio, suffered a loss, because it's well diversified, the entire portfolio, by the end of the year, we had fully recovered the losses and, in fact, ended the year with a gain of almost $500 million. And not to just take 1 year in isolation. If you look at all 4 years that we have had this portfolio, it's a satisfying return of annualized 6.7% through the ups and downs. So we will continue to adopt a strategy of diversification when we manage this external portfolio.

And what's the level? I think he asked. Seems to be $7 billion.

So the market cap right now is $7.5 billion, slightly higher than the $7 billion that you mentioned.

Thank you, Vanessa. I think this also marks the end of our presentation today. Thank you very much for your participation. I wish you a good evening ahead.