Hong Kong brokers seek institutional business
With retail transactions drying up in the current economic conditions, new teams are setting their focus on hedge and pension funds
Hong Kong brokers who depend for their basic business on the city's small investors are gearing up to serve big institutional clients as retail transactions dry up on the stock market.
Sun Hung Kai Financial, operator of the largest local in the city, recently set up a dedicated institutional equities team to serve hedge funds, pension funds, government sovereign funds, insurance companies, and major corporations.
"Retail investors may not like to invest during a market downturn, but institutional investors always have a need to invest," said Richard Seaward, the company's head of institutional equities. "We already have a retail broking unit and a private bank, so it is natural to step into institutional equities to diversify our businesses."
Seaward, who has 30 years of experience in institutional equities trading in several firms in London, New York and Hong Kong, joined the company two months ago.
He has a team of eight analysts and seven in sales, half of whom have more than 25 years' experience.
"We do not need a big team but we need quality people," he said.
Seaward's team advises hedge fund and pension fund clients on identifying stocks in the greater China region and some Asian markets that have high growth potential.
"Many fund managers are returning to the view of a soft rather than a hard landing for China, which remains a growth story in a global context, and Hong Kong remains the best way for most investors to gain an exposure," he said
Evidence of that is the capital inflow into the city in recent weeks that has forced the Hong Kong Monetary Authority to buy billions of US dollars and sell the Hong Kong dollar to counter upward pressure on the exchange rate.
Liquidity easing in the United States, or the QE3, generated increased capital flows in search of investments, which led to the Hang Seng Index surging to a 14-month high during last week's trading.
"Overall, I believe the capital inflows will continue as the Hong Kong market is relatively cheap. The market outlook is positive and it is the time to buy equities," Seaward said.
Newly launched Hong Kong fund house Cathay Conning Asset Management will not cater for retail trading, according to chief executive Mark Konyn.
The firm is partly owned by US investment firm Conning that serves institutional investors, and the Hong Kong joint venture will also focus on institutional clients.
Certain strategies might work well for both retail and institutional clients, Konyn said, but there were important differences between the two.
"For retail investors there is a need to pool investments with other investors in mutual funds, and this does not allow the flexibility that institutional investors require," he said.
"For institutional investors, we spend our time understanding client requirements and tailoring strategies to meet those requirements."