Hong Kong's equity liquidity is worrying and the $4tn market is dead
博阿尔农
发表于 2023-10-8 12:05:20
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Share turnover in the financial centre has fallen sharply over the past three years, reflecting waning investor appetite for trading shares on the Hong Kong stock exchange. Lower trading activity has also contributed to higher volatility, which has become a sticking point for some Hong Kong-listed companies whose shares barely traded on some days. The problem has also made it harder for HKEx to attract global companies to list in Hong Kong.
The Hong Kong exchange's operator said in August that "persistently high interest rates, a fragile global economy and weak market sentiment" had contributed to the fall in trading volumes.
Market participants say there are deeper reasons. Many Western and international investors have pulled money out of Chinese equities and cut their exposure to the country for geopolitical and other reasons, they said. As a result, Hong Kong's stock market, where money flows freely, has suffered far more than China's stock exchanges, where flows are tightly controlled.
The combined market capitalisation of companies listed on the Hong Kong exchange is now more than a third below the peak reached in mid-2021, wiping out more than $2tn in total market capitalisation. Chinese companies account for more than three-quarters of the total market capitalisation of shares listed on the Hong Kong Stock Exchange.
"There's a lot less liquidity coming from abroad," says James Fletcher, founder of Utah-based Ethos Investment Management. The firm focuses on emerging market small-cap stocks.
Mr Fletcher said he had been trading and investing in Hong Kong for 18 years. He said he has noticed that selling shares on the Hong Kong stock Exchange has become more difficult in the past few months, with many more being sold than bought.
He added that the spread between buying and selling prices of some companies' shares had become wider. Fletcher also said he attended a China investment conference in June and saw far fewer U.S. investors attending similar events than in past years. "People are reluctant to make big bets on China," he added.
The benchmark Hang Seng index fell back into a bear market over the summer and on Wednesday closed at a new low since 2023. The index is down 13 per cent this year and is on track for a fourth straight year of losses.
Hong Kong government officials recently set up a task force to promote liquidity in the stock market, which will, among other things, review complaints from market participants about the relatively high tax on stock transactions in Hong Kong. Mainland authorities have recently cut stamp duty on securities transactions.
A spokesman for HKEx said: "We are exploring ways to further enhance market liquidity and strengthen Hong Kong's competitiveness as an international financial centre."
Both buyers and sellers of shares traded on the Hong Kong Stock Exchange now pay a stamp duty of 0.13 per cent of the value of each transaction, equivalent to about $13 for every $10,000 worth of shares traded, following an increase in stamp duty by the Hong Kong government in 2021.
Investors and analysts say this extra cost, which does not exist in the United States, has become a deterrent to stock trading in Hong Kong. In the second quarter of this year, the average daily turnover of equity products on the Hong Kong Stock Exchange was about $11.6 billion, down about a third from the same period in 2021.
Even a cut in Hong Kong's stamp duty may not be enough to revive stock trading activity. Andy Maynard, head of equities at boutique investment bank China Renaissance Holdings Limited (1911.HK), says: "The measures you would normally think of to improve liquidity in Hong Kong just obscure the bigger issue, which is the impact of what's happening in the Chinese economy on the Hong Kong stock market."
Hong Kong's benchmark Hang Seng index is expected to fall for the year as a whole.
China's regulatory clampdown on Internet technology companies has deterred international investors. International investors remain pessimistic about China's economic growth prospects, given a slump in the country's property sector and rising tensions between Beijing and Washington.
Jasmine Duan, senior investment strategist at RBC Wealth Management, said so-called "bargain hunters" who tend to buy after a fall in share prices are sitting on the sidelines for now. "They want to see more signals confirming the continued recovery of the Chinese economy," she added.
Hong Kong's most valuable companies, such as Internet giant Alibaba Group Holding LTD., 9988.HK, are easier to trade, fund managers say. Alibaba Group Holding LTD and Tencent Holdings LTD (0700.HK). "Companies with a market cap of less than $1 billion are the most difficult to trade," said Louis Lau, chief Investment officer at SAN Diego-based Brandes Investment Partners.
George Molina, head of trading for Asia at Franklin Templeton, said getting more retail investors involved could be one solution. Molina also said that adding day traders to the Hong Kong market could help investors buy and sell more quickly, especially for small and medium-sized stocks.
Asia Securities Industry & Financial Markets Association, a lobby group, Lyndon Chao, head of securities at the Financial Market Association, said the financial industry was also pushing for greater access for mainland Chinese investors to the Hong Kong stock market. Mr. Zhao also said that some members of the association have proposed lowering the threshold for Hong Kong stock connect. Mainland investors must now have at least 500,000 yuan ($69,000) in combined assets in their securities and capital accounts to participate in the scheme.
'This will open the floodgates for mainland investors,' Mr. Zhao said.
"To improve the performance of the stock market, the key lies in investors' expectations for the future market, which is related to the amount and direction of capital entering the market," Mr. Chen wrote in an essay last month. "These are not effects that can be achieved simply by cutting the stamp duty on share trading."
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