The growing ranks of Hong Kong's day traders
Hongkongers think stock flipping is safer than buying and holding, writes Jeanny Yu
Leung Siu-hong's day job is selling Hong Kong real estate. In August, he picked up another activity: trading stocks, joining the growing ranks of Hong Kong's so-called day traders.
The 48-year-old property agent isn't a newcomer to the stock market. He had been investing for the long term, but coming up short on returns. So, he changed strategy.
In August, Leung sold a residential property and pocketed HK$1.2 million. He earmarked 5 per cent of the proceeds, HK$60,000, to invest in the stock market and 20 per cent to buy gold. He's keeping the rest in cash.
Now, he has decided that once the paper gain on any stock play exceeds 3 per cent, he will cash out. "If you make the right call that day, the return is far better than I was making on stocks I had held for more than six months," says Leung.
With markets gyrating, "it is too dangerous" to hold stocks overnight, adds Tang Wenqun, a 40-year-old self-described medium-term investor turned day trader. Tang has been trading stocks for 15 years and used to invest in heavyweight counters such as PetroChina and China Construction Bank, and hold the stocks for at least six months. Her strategy changed after she started to rack up losses.
She invested HK$300,000 to build an equities portfolio in the third quarter of 2007, when the Hang Seng Index was hovering around a historic high of 30,000. After the market turned sour (it hit a low of 11,015 in 2008) Tang began to liquidate. She sold most of her holdings in the first half of 2009, missing out on a market run-up in the second half of the year. She sold the rest in early 2010. By April 2010 she was out of the market completely, having lost half her initial investment.
With the HK$150,000 cash she had salvaged, Tang toyed with buying into an investment property to rent out in Hong Kong. But worried that real estate prices might fall, she changed her mind and stayed in cash.
The next year she stayed away from the stock market, instead making bets on gold, which paid off. In 2011, the price of gold climbed 11 per cent, trading above US$1,800 an ounce for the first time. It is now trading at the US$1,700 level.
Tang decided to wade back into the stock market in March this year, after some friends convinced her there was big money to be made in small listed companies. Before she calls her broker each day, she listens to the morning news, watches TVB's financial report, reads at least four daily newspapers and gets tips from broker friends and other day traders. Her stock plays usually range from HK$20,000 to HK$50,000 each, and her main objective is to get out before the market closes each day. Her investment portfolio is evenly split between gold and equities.
Tipped off by a broker friend, she recently placed a HK$50,000 quick bet on a small Hong Kong developer named Winsor Properties. It paid off with a 10 per cent gain, her biggest win yet. But she's also chalked up losses in the past two months on the order of "less than HK$5,000." What keeps her coming back? She wants to recover her earlier big losses.
Shenyin Wanguo Securities, one of the city's major brokerages with about 6,000 retail clients, says the number of individual clients doing day trades has doubled in the past six months and now accounts for about 40 per cent of its client base.
"People just do not feel safe to hold a stock overnight. The European debt crisis is like a bomb that could go off at any time," says Sharon Wong, director of a retail branch at Shenyin Wanguo in Hong Kong, who adds he's never seen so many clients turn to day trading.
Wong says his clients have cut their average holding in equities to less than HK$100,000 from about HK$200,000 last year. But with clients trading more frequently, sometimes flipping shares within half an hour, fee income is up. This is seen at other brokerages as skittish investors straddle a need to conserve cash with a desire to make up for past losses with frequent opportunistic trades.
The rise in day trading in many ways is peculiar - it goes against the grain of other trends. For example, retail participation in the local share market is falling - the Hong Kong stock exchange says local retail investors accounted for 22 per cent of share trading in the period October 2010 to September 2011, from 25 per cent in 2008-09.
Share trading volumes are down. Daily turnover in Hong Kong in the first half of 2012 dropped 19 per cent from last year's average.
Share-price volatility has also dipped, and day traders usually thrive when stocks are moving. The local gauge of volatility, known as the VIX, has been hovering around 21 for the first nine months of this year, below its 10-year average of 25.
Nevertheless, traders seem to be favouring a stock-flipping strategy on the somewhat perverse view that this is safer than buying and holding, and, indeed, that this is the route to quick money.
"As a retail investor, if you 'day trade', it's easy to earn a few percentage points within a day," says Francis Cheung, head of China-Hong Kong strategy at CLSA.
Ken Wong, an equity strategist for State Street Global Advisors, says day traders typically focus on small-cap stocks, which are prone to big price moves. "On high trading volume days, the prices of these stocks can be very volatile," he says.
For example, the share price of local retail group Sincere surged 50 per cent on September 28 after the retailer said it sold a property company in the northern city of Dalian. Brokers say day traders drove much of that price move.
Day traders also zeroed in on Frasers Property (China), which develops business parks, after its controlling shareholder changed last month.
Day traders also descended on wind power firm Xinjiang Goldwind Science & Technology, a mid-cap stock, following speculation that Beijing would offer new subsidies to the clean power industry.
In April, ahead of the annual earnings season, gaming stocks were the top of the day-trading charts, and local jewellers such as Luk Fook were popular for several days in late June following news that non-permanent residents were about to get more freedom to travel to Hong Kong. Authorities put that policy change on hold, but enthusiasm for day trading continues.