White Collar

Local brokerages don’t have much to cheer about as stock connect celebrates its first anniversary

After a year of operation, the cross-border investment scheme remains dogged by low trading volumes and lacklustre interest from brokerages

PUBLISHED : Monday, 16 November, 2015, 2:29pm
UPDATED : Tuesday, 17 November, 2015, 12:58am

As the stock connect celebrates its first anniversary Tuesday, attention is likely to shift to the thin turnover of the scheme and how this can be improved. To solve the problem, Hong Kong brokers should be given expanded access to mainland investors. Likewise, allowing mainland brokers to better serve Hong Kong clients in accessing the A-share market will also help.

At present, only one in every four local brokerage firms, or 110 brokers out of a total of 450, provides the channel necessary for investors to take part in the scheme.

Hong Kong-based brokers have better insight into Hong Kong-listed stocks than equities listed on the on the mainland. In addition, many brokerages are aware that setting up the trading platform to participate in the scheme involves costly infrastructure, while hiring team of A-share experts to consult with clients and oversee administration, is an additional burden.

Brokerages that opted to stay on the sidelined from the scheme were making a calculated bet that cross-border trade flows would not live up to the hype.

In hindsight, one year on, these brokers may have made the right choice as the turnover is not high. The average daily turnover of northbound investment flows, whic

h refers to international investors buying Shanghai A-shares via a Hong Kong broker, stood at only 6.7 billion yuan (HK$8.13 billion), representing about 0.6 per cent of Shanghai’s daily market turnover.

The average daily southbound turnover , which refers to mainlanders buying Hong Kong stocks via a mainland broker, stood at HK$3.3 billion in the past one year, representing less than 1 per cent of local turnover.

One explanation for the low turnover is the lack of motivation among brokerages to promote a product about which they have limited knowledge. Revamping the scheme to allow brokerages to promote what they are more comfortable with should result in more aggressive marketing.

Regulators should consider changes whereby Hong Kong brokers are permitted to freely sign up mainland investors to trade the Hong Kong stocks. Likewise, they should also let mainland brokers market directly to Hong Kong investors.