MSCI brush-off for China shares spells more pain for Hong Kong brokers

© Reuters. Hong Kong Exchanges flag hoisted next to Chinese national flag outside Hong Kong Stock Exchange

By Denny Thomas, Saikat Chatterjee and Michelle Chen
HONG KONG (Reuters) – Hong Kong stock brokers’ year has actually gone from bad to worse after index carrier MSCI decided not to add mainland Chinese shares to a benchmark indexed tracked by $1.5 trillion in global possessions, rushing the hopes of a sector struggling with tumbling company.
Typical trading volumes on the Kong stock market in the very first five months of 2016 are down 43 percent on a year ago, and the stock exchange is down 30 percent, its worst performance considering that the worldwide financial crisis.
With no external shocks to represent the weakness, experts fear a longer-term structural decrease for the city’s finance sector, which acts as a conduit for investment into the mainland, consisting of ‘A’ shares listed in Shanghai and Shenzhen.
The hoped-for addition of those shares in MSCI’s Emerging Markets Index, which could draw up to $400 billion into Chinese markets, had actually been a glimmer of light for brokers in Hong Kong.
Undoubtedly nearly $8 billion had actually flown into various China access items in current weeks ahead of the choice, according to UBS computations, mostly through Hong Kong.
” The MSCI choice is yet another blow to exactly what has actually been a really challenging environment for banks and banks in the sales and trading company,” said John Mullally, director of financial services at Robert Walters in Hong Kong.
” Recruitment picks up when banks feel confident about their operating environment, and present market conditions are the worst I have actually seen in a while,” he stated.
On some days, trading across the whole Hong Kong stock market floor is lower than trading volumes for Chinese e-commerce business Alibaba (NYSE:-RRB- Group on the New York Stock Exchange, Thomson Reuters data show.
Hong Kong’s prosperity is inherently connected to the mainland, its dominant trading partner, where development has actually slowed to a 25-year low.
Its own GDP shrank for the first time in almost 2 years in the very first quarter of 2016, as China’s downturn struck its next-door neighbor’s home market and retail industry.
Weak point in the finance sector, which accounts for 17 percent of GDP, declared a very first significant victim previously this month, when family-run Hong Kong lender Bank of East Asia Ltd closed its whole stock-broking device, laying off 180 people.
Another local firm, AMTD, laid off nearly 100 workers in their wealth management division, according to regional media reports.
IPO DROUGHT
In addition to falling volumes, brokers who have been sluggish to embrace new innovation are feeling the pressure of a shift towards automated trading, which cuts into fees and bypasses standard trading staff.
About 44 percent of retail trading in Hong Kong is now online, up from simply 13 percent a years earlier, according to Greenwich Associates.
There has actually likewise been a sharp fall in brand-new listings on the local bourse. The city has seen only $5.4 billion of initial public offerings (IPOs) this year, compared to $13.3 billion at this time in 2014.
” Individuals are going to review their entire cost base in the next six to nine months due to the fact that the incomes are settling at a much lower level, and there aren’t lots of IPOs either,” stated Rahul Chada, co-chief financial investment officer at Mirae Asset Global Investments.
” Bank of East Asia is simply one example. You will see others trying to reduce structure, unless the volumes pick up.”
Some foreign banks, including Barclays (LON:-RRB- plc, BNP Paribas (PA:-RRB-, Goldman Sachs (NYSE:-RRB-, Morgan Stanley (NYSE:-RRB-, have actually cut a combined 100 or so research experts and equity trading tasks in recent weeks alone, according to 4 sources.
Others are looking beyond their home grass to keep their heads above water.
” I am aiming to save my job by following various Asian markets than just concentrating on Hong Kong,” stated one head of institutional equities at a European bank.
” While that indicates longer hours on the desk, it implies I am a little more valuable.”
As Wall Street banks and Hong Kong brokers battle, nevertheless, mainland Chinese brokers are grabbing market share, albeit from a low base.
State-backed companies such as CITIC Ltd and Haitong Securities have actually expanded into Hong Kong and taken prime offices, betting they can ride out the slump with strong support from their mainland parents.
A spokeswoman for CITIC Securities International stated the business has no strategies to lay off personnel. Rather the opposite – it stated it was working with in legal and compliance and fixed-income sectors.

( This story has actually been refiled to provide full name of CITIC device in final paragraph).

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