Brokers follow HKEx's lead into world of commodities
The city's stockbrokers are following Hong Kong Exchanges and Clearing into the commodities business.
But while HKEx paid a sky-high price for the London Metal Exchange, local brokers have a more modest budget.
Tung Shing Bullion, a subsidiary of Bank of East Asia, will offer gold and silver trading for investors from today and foreign exchange trading from August or September.
Stockbroker friends tell White Collar that Tung Shing is not alone and that other stockbrokers have launched bullion trading for investors recently.
The reason for this diversification is simple. Stock market turnover has dropped recently to about HK$40 billion to HK$50 billion a day, down from almost HK$70 billion last year. Commission income from stock trading is decreasing.
Tung Shing will trade local London gold, as well as silver, around the clock. Brokers said many Hong Kong investors are trading stocks, warrants, gold and foreign exchange, so offering a one-stop shop to them makes sense.
When the gold price hit US$800 per ounce in 1980, Hong Kong had many gold trading firms. International bullion trading companies also set up operations here. Investors, however, lost interest in gold from the mid-1990s, when prices dropped to almost US$230 per ounce.
Gold came out of the doldrums in the 2000s, when people in China and India became wealthier and favoured the precious metal for wedding gifts and dowries or as gifts for newborn babies.
Gold prices surpassed US$1,900 last year before dropping to about US$1,560 now.
Many believe gold will remain a favourite for investors as the euro-zone crisis and the uncertainties of stock markets worldwide encourage investors to seek safe havens.
There are no official statistics, but gold dealers believe 500,000 to a million 100-ounce local London gold contracts are traded every month in Hong Kong at hundreds of gold dealers' shops.
HKEx has also tried to promote the commodity, but its gold futures have recorded no turnover this year. Last year, the average daily turnover was only 15 contracts.
Brokers said investors preferred to trade local London gold through gold traders, because that was a global market operating around the clock. Most importantly, the margin investors need to put up at the gold dealing shops is much lower.
For a contract of 100 ounces with a value of US$156,500, the margin investors need is only US$2,000, for a gearing of 78 times.
HKEx gold contracts need a margin of US$8,190 - the gearing drops to 19 times. In addition, HKEx contracts are not traded around the clock but from 8.30pm to 5pm.
The Hong Kong Mercantile Exchange also has gold futures, but they only trade from 8am to 11pm.
The Chinese Gold & Silver Exchange Society offers gold trading, but that is more suited to jewellers who want to have physical delivery.