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Hang Seng Index

Are HKEx products worth breaking up your lunch for?

PUBLISHED : Tuesday, 07 June, 2011, 12:00am
UPDATED : Tuesday, 07 June, 2011, 12:00am

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Many brokers and restaurant operators have complained that Hong Kong Exchanges and Clearing trading hour extensions have eaten into their lunch hours and left a bad taste in their mouths without lifting turnover significantly - and market statistics appear to bear them out.

Since March 7, the exchange has opened 30 minutes earlier and has cut the deluxe two-hour lunch break by 30 minutes. This will be cut to just one hour from March next year.

The bourse last week also proposed adding a new six-and-a-half-hour session for three futures products - Hang Seng Index futures, H-shares Index futures and gold futures - to align trading hours more closely with overseas exchanges, many of which have been extending theirs since the 1990s.

The exchange's argument for extending the time it operates is simple: Hong Kong has the shortest trading hours for stock and futures markets of any major market. Even after the extension, it will trade for only five hours, rising to five-and-a-half hours next year. The futures market trades for five-and-a-half hours, which will rise to six hours from March. The extension, if it goes ahead, would see it operating for 12-and-a-half hours a day.

While this is longer than the trading hours for Shanghai and Shenzhen, it's still shorter than the major exchanges in the US, Britain and Singapore, which open for between six and eight hours a day, while their futures markets are open from 17 to 23 hours a day.

But local brokers have a point to make: is there a strong relationship between trading hours and the turnover?

If the exchange had answered this question in April, it would have given a resounding 'yes''. Exchange figures showed that average daily turnover of the stock exchange in April stood at HK$79.58 billion, up 1 per cent from March - the month in which it first extended the hours - and 14 per cent higher than a year earlier.

From January to April, average daily turnover was HK$79.74 billion, up 16 per cent year on year.

But it's a different story in May, with average daily turnover of HK$64.59 billion, down 18.84 per cent on April.

This suggests that market turnover is driven more by the prevailing business or economic news. With the European debt crisis deepening last month, it was hardly surprising to see investors taking a wait-and-see attitude to their investments. Longer trading hours do not inevitably translate into more business.

Now take the three products for which it proposes radically extending the trading hours. It makes sense for the exchange to want extra trading time for the flagship Hang Seng Index futures and H-shares Index futures, which are popular products, with thousands of contracts changing hand every day. But the gold futures? Sad to say, only one contact was traded last Friday and open interest was a meagre 53 contracts on the day. In comparison, the Hong Kong Mercantile Exchange, the new commodities bourse launched three weeks ago, recorded 2,176 gold futures contracts trades last Friday, with open interest standing at 3,953 contacts.

The HKEx may want to use the longer trading hours to boost the gold products, as its gold desk now closes at 5pm while the Mercantile Exchange trades until 11pm.

But if investors are not interested in the products, will it make any difference if trading hours are extended?

Brokers think it's not worth spoiling their dinners for such products.

Instead of extending trading time for the gold futures, the exchange should rather have a good hard think about whether it's worth trading the products at all.