Hong Kong Exchanges and Clearing Ltd
HKEX:388
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Hong Kong Exchanges and Clearing Ltd
Earnings Call Analysis
Q2-2023 Analysis
Hong Kong Exchanges and Clearing Ltd
For the first six months, the company reported an 18% increase in headline revenue and a 31% jump in net income compared to the same period last year, marking the company's best second quarter revenues ever.
The first half of the year saw various strategic initiatives, including expanding Stock Connect's eligible stocks list, launching new products, opening a North American office, and introducing Hong Kong dollar renminbi dual counter model.
Despite a 16% year-on-year decline in cash market volumes due to market sentiment, the derivatives market experienced significant growth, with derivatives contracts reaching a record half-year high.
With a surge in net investment income from $89 million to $2.68 billion due to rising interest rates, the company's net investment income significantly contributed to the first half's performance. Operational expenses rose by 7%, but when accounting for professional fees, the increase was a more modest 4%, reflecting investments in talent and infrastructure.
Reflecting the solid financial performance, the Board declared a 2023 first interim dividend of $4.50 per share, a 30% increase against the prior year period.
The company saw a 10% decrease in total revenue and a 15% reduction in profit after tax in Q2 compared to Q1. This was due to lower trading and clearing fees from a decrease in Average Daily Turnover (ADT), lower net investment income, and reduced gains from external portfolios, partly offset by an increase in depository fees.
Although the total IPO funds were lower, the number of IPOs increased, and funds raised in Q2 more than doubled compared to Q2 2022, indicating a strong attraction for new economy companies.
The company's ETF market benefitted from the inclusion of ETFs in the Connect programs, posting strong growth. Additionally, Swap Connect was launched, marking a significant milestone as the first derivatives clearing link between Mainland China and Hong Kong.
The Connect programs saw efficiency enhancements such as the addition of trading days and the launch of initiatives like a dual counter market-making program. Such improvements deepen cross-border market accessibility and increase trading opportunities.
With new office openings in key global locations, including New York and London, and the introduction of FINI to expedite IPO settlement times, the company is preparing for a sustainable future while enhancing market efficiency.
Acknowledging persisting uncertainties, the management remains confident in their ability to seize medium to long-term opportunities. This assurance is borne from a resilient business model, revival signs in the IPO market, and a robust pipeline of opportunities.
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Good afternoon, ladies and gentlemen. Welcome to HKEX 2023 Interim Results Analyst Presentation. Today, we are very pleased to have our Chief Executive Officer; Mr. Nicolas Aguzin; and our Group CFO, Ms. Vanessa Lau. Gucho and Vanessa will first give a presentation about our business and strategy, then we are very happy to take some of your questions. Without further ado, over to you, Gucho.
Thank you very much. Good afternoon, everyone, and thank you for joining us today. Today, we're pleased to be presenting our results for the first half of 2023. First, I will give you a quick overview; then Vanessa Lau, our CFO, will share more details on our numbers. After that, I will be back to discuss some of our business highlights.
We're reporting a good first half of the year, reflecting our focus on strategic development, diversification and business resiliency. Headline revenue increased 18% for the first 6 months compared with the same period last year, and net income increased 31%. And for the quarter, we're reporting our best second quarter revenues ever.
I will let Vanessa talk through the numbers in more detail shortly, but first, I just want to highlight that over the last 6 months, HKEX has delivered on a large range of strategic initiatives. They have included the expansion of the list of eligible stocks in Stock Connect the inclusion of international issuers in Southbound Stock Connect, the introduction of a new specialist technology company listing chapter, the launch of Swap Connect, the launch of the Hong Kong dollar renminbi dual counter model, the opening of our first North American office.
All of this continue to reinforce HKEx's relevant and vital role in connecting China and the world. At the same time, we have continued to strengthen our Mainland and international partnerships. We signed MOUs with Saudi Arabia's Tadawul, the Indonesia's Stock Exchange, the Beijing Stock Exchange as well as the cities of Ningbo and Nanjing. This strategic process was set against a globally soft market, impacting cash market volumes during the period, which were down 16% year-on-year.
However, our diversification strategy is delivering results. We saw an exceptionally strong performance in both the Hong Kong derivatives and ETP markets. Each of those sectors reporting all-time volume records. And despite the fragile market sentiment, the Hong Kong IPO market fared better than many others. We are hopeful for a stronger second half of the year as inflation gradually comes under control and further economic measures and stimulus are introduced in the mainland.
So to summarize, good financials, resiliency and a host of important foundational initiatives. These are the highlights from the first half of the year. I will discuss some of them in more detail shortly, but first, let me hand over to Vanessa to go through the results. Over to you, Vanessa.
Thank you, Gucho. Good afternoon, everyone. Thank you to all of you joining us on this call. I am Vanessa Lau, I would now like to share with you highlights of our 2023 interim financial results. The first half of 2023 was good for HKEX, and we are reporting the second highest half yearly revenue and profit ever, ranking just after the exceptional record results of the first half 2021. These good results are despite a market characterized by continued global macro uncertainty and market fragility.
That said, cash market volumes for the period were affected by market sentiment, and headline ADT was down 16% year-on-year. However, the derivatives market continued to see strong growth and the number of derivatives contracts traded reached a record half yearly high driven in part by new products launched in recent years. In particular, physically settled options on futures contracts saw several record highs during the half year, and Hang Seng Tech Index futures and options also performed well, with a 62% increase in ADV compared with the first half 2022.
Northwall Stock Connect trading saw solid growth, with Q2 ADT 26% higher than Q1. We benefiting from the expansion of eligible stocks in March this year. Core business revenue for both Q2 and the first half was 5% higher than the respective period last year. reflecting higher net investment income from margin and clearing house funds more than offsetting sentiment-driven lower fees in trading, clearing and listing.
The external portfolio rebounded with the market in 2023, with a $20 million gain in Q2 and a $215 million gain for the half year. For Q2, Profit after tax was $2.9 billion and earnings per share was $2.29, up 34%. For the first half, profit after tax was $6.3 billion, and earnings per share was $4.99, up 31%. The Board has declared a 2023 first interim dividend of $4.50 per share, up 30% against the prior year period.
Turning to the next page, let's look at the detailed financials for the first half 2023. Driven by record net investment income and record derivative volume, total revenue was up 18% and profit was up 31% against the comparable period in 2022. The increase in investment income was partly offset by lower trading and clearing fees and lower listing fees from fewer newly listed derivative warrants and CBBCs. OpEx was up by 7%, reflecting continuous investment in talent the increase in LME legal and professional fees associated with a nickel instant and the newly launched strategic and operational strengthening program.
Next, we look at the Q2 2023 results against the previous quarter. Total revenue was down 10% and profit after tax was down 15% against Q1, reflecting lower trading and clearing fees from the 20% decrease in ADT, lower net investment income of margin funds and clearing health funds and lower fair value gains of the external portfolio. The decrease was partly offset by the seasonal increase in depository fees and OpEx remained broadly in line with Q1, reflecting prudent cost controls.
Moving on to look at the trend line. You can see that we continue to follow the general upward trend of the last 5 years on both revenue and profit in 2023. Despite weaker cash market sentiment in Q2 HKEX continues to maintain an attractive EBITDA margin, reflecting the successful diversification of our business in recent years and our continued cost discipline. Next, we take a look at investment income.
Net investment income comprises of internally managed corporate funds, margin and clearing health funds and an actively managed external portfolio. Total net investment income for the first half 2023 was $2.68 billion compared with $89 million in the first half of 2022. Benefiting from rising interest rates, internally managed investment income more than quadrupled to $2.46 billion in the first half this year.
This was, however, partially offset by the launch of our new warmly welcomed Value at Risk Platform in June 2022, which reduced the margin and default fund contributions of HK SEC counterparties. The external portfolio recorded fair value gains of $215 million in the first 6 months of this year compared with losses of $511 million in the first half 2022, reflecting the improved performance of global equities and fixed income markets and the proactive management of the portfolio.
Lastly, let's look at operating expenses. OpEx was up 7% in the first half 2023 compared with the first half 2022, partly attributable to professional fees incurred by the LME. Excluding professional fees, OpEx increased by 4% and reflecting the group's continued investment in existing and new talent, infrastructure, customer and operational excellence.
To summarize, despite a challenging macro backdrop, HKEx's core business continues to show its strength and resilience. The increasingly diverse business continued to perform well and remains strongly placed. We have a clear strategy and a steadfast focus on execution. This is reflected in both the numbers we are reporting today and also in the extensive range of new products and initiatives successfully launched so far this year.
I will now hand back to Gucho for our business and strategic update.
Thank you, Vanessa. As mentioned, the interim results are second only to those reported for the exceptional first half of 2021. This demonstrates our continued resiliency and relevance underpinned by progress in our strategic development and diversification. Record volume highs in our derivatives and ETP markets helped to offset some of the global softness felt in the cash markets.
There was a record 1.4 million derivative contracts traded per day in the first half. This reflects a wider selection of products in the ecosystem as well as sustained demand for risk management instruments in times of market volatility. The Hong Kong ETP market has continued to expand in the first half of 2023, with average daily turnover increasing 18% year-on-year to nearly HKD 14 billion, and the volumes of OTC Clear surged by around 60% in the first half of the year.
Stock Connect revenue totaled HKD 1.2 billion, contributing 11% to group total revenue. Key drivers included the inclusion of ETFs in Stock Connect and the expanded eligibility list of Connect stocks.
The Northbound average daily turnover reached RMB 123 billion in the second quarter of 2023. That's up 26% compared with the prior quarter. This increase follows the Stock Connect expansion that took effect in March. And trading on the Northbound Bond Connect recorded steady growth with average daily turnover of RMB 39 billion, and that is up 25% year-on-year.
While IPO funds were lower than the same period last year, the number of IPOs was actually up, and the total funds raised in the second quarter was more than double that of Q2 2022. This is encouraging. We continue to attract new economy companies to our market, the new specialist technology company reform to our listing framework in March, further opened the door to the company of tomorrow. The first application was actually received in June.
Now let me zero in on what has been a defining period for the Connect programs. The inclusion of over 1,000 eligible stocks in Northbound Stock Connect and the inclusion of international companies in the Southbound channel opened up greater investment choice for investors. This enhances HKEX's competitiveness in attracting more international companies to list in Hong Kong.
This and other enhancement had an immediate effect on ADT which you can see on this slide. The ETF market also recorded strong growth momentum in the first half of 2023, in part supported by the earlier inclusion of ETFs to Connect. The ADT of Northbound ETFs totaled RMB 504 million in the second quarter while average daily Southbound turnover reached HKD 2.8 billion, up 65% compared with the first quarter.
Now moving on, let's have a look at the progress we made in executing against our 3 strategic imperatives. Our first, connecting China and the world is a strategic imperative that focuses on our continued commitment to build on our role as a super connector between East and West, facilitating the critical 2-way capital flows. I just mentioned the positive reaction to some of the enhancements we made to our Connect franchise.
Another highlight was the launch of Swap Connect in May. This marks a milestone in the Connect story as it is the first derivatives clearing link between Mainland China and Hong Kong and the first major mutual market access program in this asset class in the world. On the first day of its launch, 27 offshore investors traded onshore renminbi interest rate swaps with a notional value exceeding RMB 8.2 billion.
We also made enhancements to our connect infrastructure to increase efficiencies. This included the addition of about 10 trading days to the Northbound and Southbound Connect each year deepening cross-border market accessibility and bringing more trading opportunities to investors.
Our second imperative is connecting capital with opportunities. Here, we have been focused on improving our market liquidity and enhancing our product ecosystem. In particular, we welcomed the first listing application via Chapter 18 in June after the new listing rules for specialist technology companies, which took effect on March 31 of this year.
The launch of the Hong Kong dollar-renminbi tell counter model and the dual counter market-making program in June was also an important development in Hong Kong. The initiative added to our already comprehensive renminbi product ecosystem while supporting the ongoing internationalization of the renminbi. It also lays the groundwork for enabling the trading of the renminbi counter in Southbound Stock Connect.
To support the long-term sustainable growth of Hong Kong as Asia's preferred international capital market, we continue to enhance our product portfolio in the first half of 2023. This included the introduction of new crypto asset ETFs to ESG ETFs, the relaunch of MSCI India Index futures and the further expansion of single stock options. This all provide our customers here in the region and around the world with even greater choice and more tools for trading and risk management. Earlier, I mentioned our New York office opening and the imminent launch of our London office with our expanded global presence, our operations now spans across all key time zones.
Our third strategic imperative is connecting today with tomorrow. By this, we mean preparing our organization for the future. This saw us focus during the first half on modernizing our infrastructure and putting sustainability at the heart of our business strategy. We issued a consultation paper in April seeking market feedback on proposals to enhance climate-related disclosures aiming to align with the ISSB's climate standard.
We also announced that we will be officially launching FINI, our new IPO settlement platform in October of this year. FINI will significantly shorter the time between the pricing of an IPO and the trading of shares from 5 business stages to just 2 days. This major initiative will enhance market efficiency and strengthen the competitiveness of our IPO franchise.
Looking ahead, we expect the uncertainties of the macro landscape to persist and continue to shape the market sentiment. However, we are confident in the resiliency of our business and our ability to capture the medium to long-term opportunities, which remain significant. We're pleased to see encouraging early signs of revival in our IPO market matched by a very healthy pipeline. And we're also excited about the increasingly broad portfolio of markets, products and opportunity opportunities we now offer our clients around the world and the positive progress we are making on our strategy.
My thanks to my colleagues, our customers and our friends around the world for their support. We remain prudent in the management of our business and cautiously optimistic about the outlook. Our business is very well placed, and we remain firmly focused on our vision to create the marketplace of the future.
Thank you. And now we are very happy to take questions.
Thank you, Gucho and Vanessa, for your sharing. And now we will open for questions. Operator, over to you for the Q&A session instructions.
[Operator Instructions] Our first question comes from the line of Gary Lam from HSBC.
Gucho, Vanessa and Ricky, two questions, if I may. Firstly, I agree that there is a very important development on the RMB dual counter. Can we get some feedback on the way that the market making mechanism so far has been introduced? Has it been running sort of smoothly and as you expected? Or do you see how long an observation period do we need before we deciding that this mechanism is probably good enough? And then at least from an infrastructure wise, we are ready to open Southbound RMB trade? And how -- what kind of time frame should we be thinking about by weeks or months or by quarters?
Secondly, focus on the stamp duty. Could you share with us your understanding on the engagement between the industry, including, of course, the exchange or maybe various financial institutions together with the Hong Kong government as to the possibility of basically lowering it again? I think this is premise, of course, on the year-to-date sort of better-than-expected GDP sort of trends that we are seeing. So hopefully, I don't know, maybe '24 or '25 that the government can see the fiscal surplus again? Yes, just 2 for now.
Okay. I'm going to pass this question along to Wilfred Yiu.
Gary, It's good to get a question from you. So I'm going to touch on renminbi counter in particular. I think right now, we're roughly about 2 months, I think, since the time we launched it on June 19. I would say that the initial launch was very smooth and successful that the market makers activities that now we have seen the consistent performance of the quotations in the market and spreads around the counters has remained very, very tight. I think which is a very good sign, I think, from a design of the mechanism the obligations and the rights that goes with the market maker schemes itself is working well in the market. That's the first one I want to mention.
Now second point is about the general market uptake in activities in the interest in renminbi count. I think that we still have quite a lot of work to do in the [ forward] space, to be very frank with you. I think historically, Hong Kong market, a lot of people are trading in Hong Kong market in Hong Kong dollars. So we need to do a lot more client engagement, marketing that now we have a renminbi counter available and making people aware and they're making also them aware that how the liquidity between the Hong Kong dollar counter and the renminbi counter are actually linked up. through this mechanism and the slippage in that is very, very small, and therefore, it's a very reasonable way to assess the market and using renminbi as a increase in interesting currency to be working with.
Now third point I do want to mention is, obviously, we collected 2 months of very important data for us to still fine-tune the machineries and there's still a lot of data that we need to digest and making sure that we get to a place where we feel comfortable about any future expansion. But along at the same time, we have been very proactively working with the mainland counterparts in ensuring that the models and the systems and the infrastructure linkages are met in terms of the expectations and the design features, specifications, resiliencies and all those fronts are meeting our requirements and expectations.
And you know me well, so we are not going to leave any stone unturned. So we will be coming back to a market when we have more detailed information to offer. But right now, I would say that in conclusion, the mechanism is working very well, and we'll continue to hope to add on more market makers, specialists into the markets to make the liquidity even more robust from this point of back for you, Gucho.
Yes. So the second part of the question was around the stamp duty and mean stamp duty is something that is not managed by us, as you well know. And what we can highlight is the results of some of the areas where stamp duty was eliminated or exempted such as ETFs or the derivatives market, some of the hedging and even in the renminbi counters for market makers. So that is something that has allowed those markets to develop. It has helped them develop. And it's, of course, up to the government to assess the benefits the pros and cons of like changing the current duty levels. So it's very difficult for me to comment anything on this front.
Our next question comes from Gurpreet Sahi from Goldman Sachs.
I have a couple. First is on the cash market. I know the focus has been the dual counter and RMB, et cetera. But overall liquidity in the cash market is quite low. Are we at a point in time where -- of course, as Gucho mentioned, that stamp duties with the government. Are we at a point in time where we should think about tick size reduction or making trading in odd lots also possible so that overall liquidity in the cash market can be improved?
And then the second question is more on Slide 16, where the management is guiding us that interest income is expected to decline in the coming quarters. Can I ask Vanessa whether this is more that the margin balance has reduced after the new VaR model has been laid out? Or it's because of the interest rate, the yields that we will get are lower in the second half?
Okay. Gurpreet, so let me just like address, in general, the first question, the cash market and what we can do to improve its liquidity. I mean, with Wilfred, we're constantly evaluating and thinking about how we can make it more vibrant, what are the things that we can do, what are the structural changes that can be done. Now any change that we would do requires a combination of systems infrastructure, discussing with brokers and assess the impact to large brokers, more brokers.
I mean there's a lot of analysis, but we do have a list of things that need to happen. We've been working on some areas that you may have noticed, we recently announced said much prevention, for example, to try to enhance the activity of some of the larger high-frequency participants. And then we've announced on Friday of last week, I mean, in the Connect program, the ability to do block trading and the issues that you mentioned are on lots and another enhancement, it's something that it is in our pipeline.
What we're trying to do is just like to see how do we prioritize, how do we organize, how do we stage these things. It does require discussions and communications with the regulators as well. And yes, the focus around making transaction costs cheaper, it's always there as well. So I don't know if you have anything to add, Wilfred?
Yes. I think, Gucho, you made all the very good points there. Importantly, Gurpreet, I think it is very important to understand each one of the items that you mentioned is not just that one item alone itself is going to change the world, right? So what we need to be thinking very carefully is how we orchestrate a series of changes that goes with the way the trend the market is actually evolving in terms of liquidity formations.
And that part is actually, if you look at the course of last couple of years and sort of how the world has changed in terms of the amount of active risk takers versus passive risk takers, the amount of algo trading that going in, the rise and fall of the crypto market, et cetera, all those things come into affecting how the marketplace is evolving and expectations of the right pipes, right channels and machineries that will go into the matching engine, right?
So those are the series of things that we -- like what Gucho is saying, we have a very long laundry list of items that we are prioritizing and serializing them together to make sure that we are addressing what the market needs and what the clients want in terms of the new methodologies in transacting the market in the most efficient and risk-efficient manner.
Gurpreet, it's Vanessa. Our view on net investment income is clearly whatever the Fed does in the next coming months has a big impact on our investment income. On the consensus to you that the Fed would start passing on rate hikes then clearly, we have to take a very cautious view on the outlook for our total investment income.
Now if you look at the different components of investment income on our corporate funds where we have more flexibility on how to invest we have been actively managing the tenor of our deposits to try and maximize the benefit locking down for longer tenures when we see more advantageous rates, and we'll continue to actively manage that. But on the margin and clearing health funds, as you know, we have to pay, for example, a rebate to our participants, which is a function of 1-month HIBOR.
So as the 1-month HIBOR continues to go up, you have -- you see that our rebates will increase. And that nets off the gross yields that we're able to get. And also, if you look at the size of the margin funds, it's actually a function of the level of open interest and also the margin requirement.
Now the margin requirement is clearly impacted by the price, the market price of these instruments, which have fallen somewhat and also the volatility. The volatility determines how much we call margin, and that also has fallen off somewhat. So that's why with all of those combination of factors we take a very cautious view on investment income for the rest of this year and which would probably go down from the current level.
Operator, next question, please.
Next question comes from the line of Betty Li from CLSA.
Gucho, Vanessa, Wilfred and Ricky, this is Betty Li from CLSA. I have 2 questions regarding mainly about the drivers of the growth in the second half. The first one is, I'm curious to understand about the current IPO pipelines And also, if there's further new applications under the new [ AT&C resynergy ] and if we are working on any of the new initiatives to attract the -- to attract the IPO market?
The second one is, I noticed that there is a new that we plan to introduce the block trains to the Connect program. So I just wonder, apart from that, is there any other new updates regarding further Connect expansion, for example, like inclusion of the second relisting to the Southbound? And any further updates will be helpful.
Okay. So I'm going to ask Bonnie just to give some comments around our pipeline and also our AP&C chapter and how that's working. And then maybe Wilfred, you can take the block trade question.
Sure. So to your question, Betty, so far as the IPO pipeline is concerned, as previously mentioned. At the moment, we have a very healthy pipeline in the sense that there are over 100 applications in the process of being vetted. More specifically on AP&C in June, obviously, the new regime effect end of March, and we received the first A1 application in June.
In the pipeline, there are a lot of companies which have proactively engaged with our listing division in terms of the desire to pursue a listing under Chapter AP&C, granted this is a new chapter, and therefore, obviously, the market will have a lot of questions with regards to the implementation and the specific requirements. So not in a position to share with you exactly the numbers that we expect will be filed in the second half of the year, but suffice to say that we do have already received a lot of very positive indication of interest.
Betty, this is Wilfred. Maybe, if I may, can you repeat your question on block trade? I just want to make sure I get the content, right.
I understand there is going to be an introduction for the block trades to the Connect program. So I just wonder if there's any details about the new initiatives? And if there's any further initiatives you are working on further expansion?
Yes. Okay. So I probably will answer beyond just block trade itself, right? I think block trade has a very common market practice when you move certain blocks really of stocks more efficiently than market naturally have that mechanism and both in Hong Kong and in Mainland, there are these respective kind of market features, right?
So I think in Connect itself we do want to expand those capabilities to make sure that the increasing users and positions for investor, no matter as Mainland assets in Hong Kong market or Hong Kong clients in the Mainland market. They have those capabilities in the respective market to manage the risk. I think in multiple occasions like continue to express the view and opinion around the connect mechanism and connect train itself is actually -- needs to be full-service train, high-speed and low risk and all those.
So our goal is not just purely on expansion on scope in of what to include. And that, of course, we will continue to try to include more -- bringing more in scope. And the only way you can do it is actually ensuring the risk component of it and other features that goes along with that full service content is actually indeed being built. And block trades are naturally one of those features as you -- as I just explained there.
And there will be other features that we will continue to explore with our Mainland counterparts. And with the success of what we built around the connect mechanism, a full face that we are making that train moving on higher and higher speed and the favor and faster to where we want to get to.
Operator, next question, please.
Next question comes from the line of Richard Xu from Morgan Stanley.
Two questions. One is on the -- maybe a follow-up question on the IPO pipeline. I remember like last year, the pipeline used to be around 200 applications. Now it's more than 100 applications. Is there any in terms of changes in terms of the appetite or some I guess, review of all the applications in the pipeline? And a follow-up on that is, do we see any -- I mean, obviously, the volume number of IPOs is very strong, but the value may be somewhat low. Do we see any sizable IPOs in the pipeline that might turn that trend around for maybe later this year or next year?
Another follow-up question maybe on the costs. Good to hear there's basically offices in New York and other locations. And then whether we will continue to build in those places? And how will that impact the cost income ratio is the investment income moderate over time? And then also, how the initiatives in those offices driving and maybe attract people to invest in derivatives and features and things like that. So those are the questions.
Richard, so let me just give some comments on the IPO pipeline first. I mean, I would say a few things. yes, it's definitely lower than last year. There's a number of factors that play into that, one, the software market mean companies when they decide to go out. I mean they want to make sure that they can time the markets a little bit. And with the softer market, it's a little bit more challenging. You know that around the world right now, the level of IPO activity is very low in general. So that has an impact.
I would also say that the new filing regime in the Mainland does also have like an impact in terms of like people like saying, okay, how will this work? How does it work? What's going to be the cue and that also has a bit of a slowing down effect However, the quality of the companies that we are seeing in terms of like sizable -- potentially sizable companies, we have some great companies that are lining up. And it's -- until they happen, of course, it's hard to see, but the names are high-quality names, sizable names. You have a little bit of everything, but we do like the companies that we're seeing in general. And so I would expect that if the markets recover, this number would probably start going up.
But Bonnie, do you have any comment on that before we address the cost? No? Okay. Great.
So on the cost side, yes, I mean, the important thing is we are trying to be disciplined in terms of cost. At the same time, we want to continue investing. We want to be smart in terms of how we deploy our resources, how we move our people around. And so what I think is that you should expect that to the extent that we think there are good opportunities, we're going to continue investments. We don't provide guidance on cost.
But I will repeat the same thing that I said before, which is we're going to be careful. We're going to be thoughtful, but we will continue investing because the opportunities. This is the opportunity that we have to build really incredibly valuable connectivity between East and West play a very, very unique role we are, of course, very -- in a very good position given our financial strength, given our reputation, given the people that we have to really prepare our market for the future.
So I would expect continued investments in systems infrastructure and potentially a pickup in system infrastructure build. Some of those eventually once they start operating, you need some post-operating post-implementation. But in general, I would say you have to assume that we are going to continue investing in our people. Last year, we did a special readjustment on just making sure that we adjust the compensation of our people. We feel very good where we are. Our attrition levels are improving quite a bit. So we have like a really good, stable workforce. And I don't know if you have any, Ms. Vanessa?
I would just supplement, Richard, when you mentioned costs in relation to our new offices, I would say that they are pretty modest. So an office is a small place where we have a handful of people who will be on the ground every day talking to potential issuers, potential investors giving us that presence that we have always wanted in the critical markets. But in terms of costs, I would say, is modest.
Yes. And in terms of initiatives for the future, I mean, we do have a lot on our plate that we're like executing. I mean -- and some things have been started but haven't been completed because we're in the implementation phase, whether it's bond futures or the southbound include Southbound Hong Kong dollar-renminbi counter inclusion. I mean those things are very big because the Hong Kong dollar-renminbi counter by itself, it gives more options to the investors and all these things.
But the critical thing is once you get HKD 30 billion to HKD 40 billion of daily flows into Southbound to trade in renminbi, that would make a huge difference. So that is like the ultimate objective. And the objective is to streamline when you think about like the things, the initiatives that we would be doing, we want more connectivity, and we want to make sure that over time, we make it as easy to trade and each share, just like in Asia or a share in Hong Kong just like a share in the domestic market. That's where we're going. That requires a lot of things that we're going to be doing, but that's the general direction of travel.
We do have also FINI that we announced that we're going to implement it in October. Wilfred talked about the block trade initiatives. I mean there's a lot of things in the pipeline. And as we go and have discussions with our partners, the different stakeholders, regulatory bodies and everything, we're going to continue announcing these things. And you know that every -- I mean, we're constantly announcing improvement to the connectivity programs to what we're doing in terms of facilitating trading in our markets. And I expect that to continue. And Wilfred, I don't know if you have anything to add.
I think the overseas of it, like what Gucho and Vanessa said, I think is important steps for us to make sure that we connect to the -- a lot of the capital on that part of the world. And a lot of the great developments that we're seeing here, especially as you can see, China is opening up more further, right, and how to take advantage of some of those opportunities and the additional fees that we're building, no matter if it's Swap Connect or foreign companies who are primary listing in Hong Kong will be eligible sell-downs? And how do you bring those opportunities into the door to the client franchise over there. I think they are highly, highly accretive to our franchise overall, and we are looking forward to more activities coming from that part of the world.
Let me actually complement one thing on the offices internationally because I had the pleasure of being at the opening of our New York office. And during that as we set up lots of meetings with different financial market participants that either had an interest of investing in this part of the world or are actually investing. The amount of information value added that you get by interacting is just massive. So being able to have that office where you have human being stocking day in, day out in this time of like geopolitical conflicts and all that is very, very valuable. And to do the same in Europe is great.
I think we have time for one final question. So operator, over to you.
Our next question comes from Gary Lam from HSBC.
I follow-up on angle on the Middle East. It's been several months since we last talked about it. That is, of course, on the ground, various interactivity around signing of MOUs and various organizations forming like headquarters in Hong Kong. Can you perhaps add more color on the on the ground happening and our sort of business argument and proposal of the edge that we can play a role to connect either as a listing platform or either as a place where investors from the Middle East can invest here? What are the on the ground happening that you're hearing/fearing and the opportunity that we should look forward to?
Thank you, Gary. Well, we're very excited about the Middle East as as a place that can provide substantial amount of liquidity in the future. As you know, if you look at just like the top 10 sovereign wealth funds in the Middle East, they today are managing around USD 4 trillion and the -- most of that is invested in Europe and North America. They have very, very little invested in China and not that much in Asia in general. So they want to diversify. They want to do more.
And so we've been spending quite a bit of time. I mean some of the things that I can mention right now, which are direct result of this additional interaction that we've been having, for example, FII event, which usually takes place in October, and it's like the Davos of the Middle East with people from around the world attending. They have decided to have an event in December in Asia, and they will do it in Hong Kong. So that will bring a lot of the Gulf countries to Hong Kong, together with policymakers, decision makers, fund managers, companies.
And the benefit that we can get from operating together, either with Tadawul or with, let's say, Saudi Arabia or other countries in the Middle East is that they want to diversify their economy. That's what they want to do. They want to invest in new types of companies, new economy, et cetera, away from just like pure energy and traditional industries. We have a lot of those companies. and they want to diversify into China. They want to diversify into Asia.
At the same time, they have their traditional companies that they want to lower the exposure to those companies and they need to have investors from other parts of the world because they don't want their own investors like doubling up on those sectors. They want those companies to actually capture capital from other markets. We hope that we would be a great market for those companies. Some of those companies are very sizable, and therefore, they need like a deep market.
And I think that what we're doing around our Connect initiatives, our Southbound eligibility of international companies to trade in Southbound, I mean, that's going to provide a unique source of capital that doesn't exist anywhere in the world that could be accessible to those companies. So none of this is going to happen overnight. This is things that we're planning for the next few years. But if you think about the interplay of investors and insurers, it's fabulous. I mean this is like really a match made in heaven norms.
Thank you, Gucho, for sharing about the great opportunities in Middle East. I think this marks the end of today's session, and thank you, everyone, on the line for joining us today. We hope to meet and speak with you again soon, and have a good evening, everyone.