Leading mainland China brokers set for new dawn in Hong Kong
Shanghai-Hong Kong securities tie-up expected to give mainland players the advantage
Big mainland players will likely stand to benefit from the mutual trading of securities between Hong Kong and Shanghai starting in October, posing a threat to smaller Hong Kong-based brokerages.
The upcoming change provides a golden opportunity for mainland names that have long had a presence in Hong Kong without becoming big hitters there.
The rise of the mainland brokers, thanks to lower operating costs, more extensive research coverage, a full suite of capital market services and cheaper brokerage costs will result in a wave of consolidation among Hong Kong's smaller brokers, and lower-tier foreign investment banks.
Leading the charge will be Haitong Securities, Citic Securities and Galaxy Securities. Having previously had little more than a toehold in Hong Kong's brokerage market, they have deepened their presence in recent years by acquiring competitors and raising funds.
Wilson Hui, group executive director of Haitong International Securities Group, said Chinese players with a presence in both markets will benefit the most, and "will enjoy a competitive edge over local brokers".
"The advantage of Chinese brokerages lies in their research ability on China's A-share market and full coverage of over 1,000 listed-companies, while foreign investment banks only have a selection of about 100 companies," said Rex Chan at Chinese broker Industrial Securities' international department.
In 2009, Haitong Securities bought a majority stake in Taifook, in the first-ever acquisition of a Hong Kong broker by a mainland securities firm. And last year, China's biggest securities company Citic Securities bought an 80 per cent stake in CLSA, formerly owned by French bank Credit Agricole.
Hong Kong is a fragmented market with many small brokers, some of which operate out of single-room offices and employ only a few workers.
More than 500 brokerages compete for business in the city's open market, with the top 14 accounting for more than half of turnover, according to data from the Hong Kong stock exchange.
Some global investment banks and regional brokerages are strengthening their A-share research ability, through expanding stock coverage or seeking cooperation with Chinese brokers.