CITIC Construction Investment has issued a research report maintaining its "buy" rating for HKEX (00388) with a target price of HK$543. The firm believes that three key factors - expectations of liquidity from Federal Reserve rate cuts, continued southbound capital inflows, and valuation advantages - are expected to jointly support the Hong Kong stock market in maintaining high activity levels in the fourth quarter.

Based on this outlook, the firm continues to be optimistic about the sustainability of market sentiment and trading activity, noting that HKEX's current stock price still has some upward potential. Since April, HKEX has experienced a continuous valuation recovery trend following a significant decline. This trend has been primarily driven by the maintenance of high average daily trading volumes in the Hong Kong stock market during the first three quarters and sustained buying from southbound funds.

As of October 10, 2025, HKEX's PE (TTM) stands at 36.49x, positioning at the 72.15%/71.85%/47.43% percentiles for the past 1/3/5 years respectively. The firm expects HKEX's third-quarter results to continue showing strong year-on-year growth and to further digest current valuations to a position with higher investment safety margins.

Looking at HKEX's valuation performance since 2010, when the Hong Kong stock market experiences active trading, high average daily turnover (ADT) often indicates more optimistic expectations for HKEX's current performance and medium-to-long-term growth prospects. HKEX's PE multiple is also expected to rise alongside ADT increases, and during periods of overall upward momentum in Hong Kong stocks, HKEX demonstrates relatively high upward elasticity compared to the Hang Seng Index.

The firm has updated its earnings forecasts based on market conditions in the first three quarters of 2025: Q3 revenue and other income are expected to reach HK$7.911 billion, up 47.26% year-on-year, with net profit attributable to shareholders of HK$4.824 billion, up 53.38% year-on-year. For 2025/2026/2027, revenues are projected to increase by 27.94%/5.93%/1.17% year-on-year to HK$28.625/30.321/30.675 billion respectively, with net profit attributable to shareholders growing by 40.88%/8.62%/2.13% year-on-year to HK$17.902/19.444/19.857 billion respectively.

Based on current market trading conditions, the Hong Kong stock market is expected to maintain high activity levels in the fourth quarter, supported by three key factors:

First, the Federal Reserve's monetary policy shift provides liquidity support. The Fed resumed rate cuts in September 2025, with the dot plot indicating expectations for further rate reductions within the year. Such preemptive rate cuts typically help improve liquidity conditions in emerging markets, particularly benefiting the Hong Kong stock market by providing marginal liquidity improvements that continue to support the market.

Second, continued southbound capital inflows add momentum. Southbound funds have achieved net purchases exceeding RMB 1 trillion since the beginning of 2025, setting a historical record, with full-year net inflows expected to maintain this trend. This growth stems from Hong Kong stocks' low valuation advantages and liquidity spillover effects following increased activity in the A-share market. Mainland investors actively participate in the Hong Kong stock market through Stock Connect, demonstrating recognition of Hong Kong stocks' long-term investment value and providing sustained incremental capital to the market.

Third, Hong Kong stock valuation advantages remain significant. Despite recent gains, Hong Kong stock valuations remain at relatively low historical levels. Taking the Hang Seng Index as an example, its PE-TTM as of October 10 was approximately 11.95x, at the 64th percentile level over the past 20 years. Compared to the CSI 300's price-to-earnings ratio of 14.24x, Hong Kong stocks' "valuation depression" effect remains prominent, maintaining strong attractiveness for global capital, including both southbound and overseas funds.