King Fook Securities becomes latest HK broker to close as volumes slump
The closure of local brokerage King Fook Securities highlights the tough operating conditions facing the city's hundreds of small brokers.
The firm, owned by listed King Fook Holdings, will cease doing business at the end of this month, after sluggish transaction volumes and surging costs prompted the parent firm to exit the business. The 42-year-old firm has been losing money since 2009.
King Fook's stock surged 18 per cent yesterday after the announcement of the closure to finish at 67 HK cents.
The brokerage lost HK$34.8 million in the three-year period from 2010 to 2012, eating into the profit of its parent's profitable jewellery business.
King Fook Securities becomes the 12th Hong Kong brokerage to shut its doors this year. Equity transaction volume on the local exchange has slumped as the Hang Seng Index trades below its five-year average.
Market watchers expect more closures to come in the second half given turnover and surging office rental costs.
"Local firms are fighting with banks and Chinese brokers, who have better liquidity support and a larger network. Many smaller firms will gradually disappear amid the fierce competition," said Ben Kwong Man-bun, chief operating officer at KGI Asia.
Firms that rely on equity transactions are under the most pressure, as a commission war among local brokers has thinned profit margins, Kwong added.
Turnover on the exchange yesterday totalled HK$48 million, 30 per cent less than the average daily level in the first half.
Hong Kong had 507 operating brokerage firms, some of them new entrants, at the end of last month, down from 511 at the end of last year. The top 65 accounted for more than 90 per cent of market turnover at the end of April, stock exchange figures show. Some 400-plus smaller firms fight over the remaining 10 per cent.