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

Hong Kong stock brokers’ year has actually gone from bad to even worse after index supplier MSCI (MSCI.N) 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 dealing with toppling business. Typical trading volumes on the Hong Kong stock exchange in the very first 5 months of 2016 are down 43 percent on a year earlier, and the stock market is down 30 percent, its worst efficiency considering that the global financial crisis. Without any external shocks to account for the weakness, analysts fear a longer-term structural decline for the city’s finance sector, which functions as a conduit for financial investment into the mainland, including ‘A’ shares noted in Shanghai and Shenzhen. The hoped-for addition of those shares in MSCI’s Emerging Markets Index, which might draw up to $400 billion into Chinese markets, had been a twinkle of light for brokers in Hong Kong. Indeed almost $8 billion had actually flown into numerous China access products in current weeks ahead of the choice, according to UBS estimations, primarily through Hong Kong. “The MSCI decision is yet another blow to exactly what has been an extremely tough environment for banks and banks in the sales and trading company,” stated John Mullally, director of monetary services at Robert Walters in Hong Kong. “Recruitment gets when banks feel confident about their operating environment, and existing market conditions are the worst I have seen in a while,” he said. On some days, trading throughout the whole Hong Kong stock market floor is lower than trading volumes for Chinese e-commerce business Alibaba Group (BABA.N) on the New York Stock Exchange, Thomson Reuters data show. Hong Kong’s success is intrinsically connected to the mainland, its dominant trading partner, where growth has actually slowed to a 25-year low.

Its own GDP shrank for the very first time in almost two years in the first quarter of 2016, as China’s downturn struck its neighbour’s building market and retail industry. Weak point in the financing sector, which accounts for 17 percent of GDP, declared a very first significant victim previously this month, when family-run Hong Kong loan provider Bank of East Asia Ltd (0023. HK) closed its whole stock-broking system, laying off 180 individuals. Another local firm, AMTD, laid off virtually 100 employees in their wealth management division, according to local media reports. IPO DRY SPELL

In addition to falling volumes, brokers who have actually been sluggish to embrace brand-new technology are feeling the pressure of a shift to automated trading, which cuts into charges and bypasses conventional trading staff. About 44 percent of retail trading in Hong Kong is now online, up from just 13 percent a decade ago, according to Greenwich Associates. There has also been a sharp fall in brand-new listings on the local bourse. The city has actually seen only $5.4 billion of initial public offerings (IPOs) this year, compared with $13.3 billion at this time in 2014. “Individuals are going to review their whole cost base in the next 6 to nine months since the earnings are settling at a much lower level, and there aren’t many IPOs either,” said Rahul Chada, co-chief financial investment officer at Mirae Possession Global Investments. “Bank of East Asia is just one example. You will see others trying to reduce structure, unless the volumes get.”

Some foreign banks, including Barclays plc (BARC.L), BNP Paribas (BNPP.PA), Goldman Sachs (GS.N), Morgan Stanley (MS.N), have cut a combined 100 approximately research experts and equity trading tasks in recent weeks alone, according to 4 sources. Others are looking beyond their home turf to keep their heads above water. “I am aiming to save my job by following various Asian markets than simply focusing on Hong Kong,” stated one head of institutional equities at a European bank. “While that suggests longer hours on the desk, it means I am a little better.” As Wall Street banks and Hong Kong brokers battle, however, mainland Chinese brokers are getting hold of market share, albeit from a low base. State-backed companies such as CITIC Ltd (0267. HK) and Haitong Securities (600837. SS) have broadened into Hong Kong and taken prime workplaces, wagering they can ride out the recession with strong support from their mainland moms and dads. A spokeswoman for CITIC Securities said the business has no strategies to lay off personnel. Rather the opposite – it said it was hiring in legal and compliance and fixed-income sectors. (This version of the story has been refiled to fix spelling to Hong Kong in the 2nd paragraph.) (Added reporting by Tris Pan; Editing by Will Waterman).

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