Better Buy: Singapore Exchange vs. Hong Kong Exchanges and Clearing

August 30, 2021

The competition between Hong Kong and Singapore seems to be an almost timeless rivalry. They are both former British colonies, key ports for global trade and known for their stature as global financial centres.

The Hong Kong-Singapore comparison also extends to its stock market operators. Singapore Exchange Limited (SGX: S68), also known as “SGX” and Hong Kong Exchanges and Clearing Limited (SEHK: 388), also known as “HKEX”, are both the sole stock market operators of their respective exchanges.

Last week, news that HKEX had received approval to launch China A-shares index futures saw its stock jump by nearly 7%.

In contrast, SGX’s shares declined by about 5% in response to the news as Singapore Exchange had been the first exchange to introduce futures tracking the fast-growing China A-shares market.

Yet for long-term investors and those interested in generating shareholder value over the next five or so years, which is the better buy?

Dividend growth

Both SGX and HKEX are known for paying out a dividend to their shareholders. But as I’ve always highlighted, the sustainability and growth of that dividend are key for investors. That’s particularly true if we look at the long term.

In SGX’s case, over the past decade it has grown its dividend per share (DPS) from 27 Singapore cents in FY 2010 to 30 Singapore cents in FY 2020.

That equates to a compound annual growth rate (CAGR) of 1.1% for SGX’s DPS over the past decade.

How about HKEX? Well, the Hong Kong stock exchange operator paid out a DPS of HK$4.20 in 2010 and in its latest full-year 2020 earnings, it paid out a DPS of HK$8.17.

That means HKEX’s dividend saw a CAGR of 6.9% over the past 10 years, easily beating SGX’s dividend growth over a similar timeframe.

Winner: Hong Kong Exchanges and Clearing

Total return

When investors look at a stock that pays a dividend, they should focus more on the total return potential of that stock rather than what the dividend yield is.

That’s because dividends make up a large part of total returns (which is basically the share price return + the dividend yield).

However, we all want to see our initial invested capital grow over time. That means the long-term total return is a better metric for measuring our success.

How did the two heavyweight exchange operators fare on that front? Well, over both the past 20 years and 10 years (as of 30 July 2021) SGX has delivered a total return of 3,357% and 135%, respectively.

Meanwhile, HKEX’s total return over the past 20 years and 10 years has been 8,740% and 323%, easily outperforming its regional rival.

Winner: Hong Kong Exchanges and Clearing

Earnings growth

Whenever we look at companies/stocks to buy, we have to look at the relationship between earnings growth and the share price.

At the end of the day, the future share price will be decided by how successful the company is at growing its earnings over time.

Looking at earnings before interest, tax, depreciation, and amortisation (EBITDA), Singapore Exchange posted an EBITDA figure of S$656 million in FY 2020.

Back in FY 2010, SGX posted full-year EBITDA of S$404.5 million meaning over the past decade SGX has seen its earnings expand at a CAGR of 5%.

As for HKEX, in 2020 it posted an EBITDA of HK$14.64 billion (US$1.87 billion) while in 2010 it posted EBITDA of HK$5.95 billion. That meant a CAGR in earnings of 9.4% over the past decade.

Winner: Hong Kong Exchanges and Clearing

The China factor

It becomes clear as investors look closer that Hong Kong Exchanges and Clearing has benefitted immeasurably from the development of China’s capital markets.

That’s because many Chinese companies have carried out multi-billion-dollar initial public offerings (IPOs) in Hong Kong over the years whereas Singapore Exchange has struggled to identify a similar sort of growth catalyst.

Inevitably, that has fed through to superior earnings, total return performance and dividend growth – all of which make HKEX a better buy than SGX for long-term investors.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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