HK Exchanges sinks most in 6 years as Goldman says sell

{SYDNEY] Hong Kong Exchanges and Clearing Ltd is on course for its steepest slump since Oct 2008 after Goldman Sachs Group Inc advised selling shares of the world's largest bourse operator amid concern weaker volumes will curb earnings.

The stock plunged 13 per cent to HK$226 (S$39.4) as of 10.42 am in Hong Kong, extending to 23 per cent its decline from a record high in May. Goldman Sachs lowered its price estimate by 26 per cent, and cut its recommendation to sell from neutral.

Investors pushed up valuations on the exchange operator this year amid a 56 per cent surge in April as regulators expanded access to the city's shares for Chinese funds through the cross-border trading program, part of measures being introduced to open up capital markets on the mainland.

"Investors remain concerned about the slowing earnings growth of HKEx despite solid revenue growth," said Bernard Aw, Singapore-based strategist at IG Ltd. "The Goldman Sachs report merely provided more excuses to decrease exposure to HKEx shares."

Monday's decline leaves the gap between analyst share-price estimates and the stock price at the widest since 2008, according to data compiled by Bloomberg. The average 12-month forecast is HK$306.47, about 36 per cent higher than the current level, the data show.

"Whilst we continue to expect HKEx to benefit from the opening of China's capital markets longer term, the share price move ever since the March 2014 low has more than reflected the potential for a structural improvement in earnings," Goldman Sachs analyst Gurpreet Singh Sahi wrote in the report.

BLOOMBERG