Concerns about disposal plans for the Government's holdings in Hong Kong blue chips could explain why cash-market turnover has shrunk as futures volumes grow, according to analysts. The ratio of turnover in the two markets has shifted sharply this year, a sign that investors are eschewing share-buying and opting to use the futures market for their funds. Analysts and brokers said a combination of factors was responsible for rising futures trading, among them increased activity by international fund managers and local corporate traders. As to low turnover on the stock exchange, they blamed poor fundamentals and the overhang of the Government's roughly $155 billion stock portfolio. 'Having invited banks to offer plans for managing those funds, investors are seeing the possibility that [$155 billion] worth of shares may hit the market some time relatively soon,' a sales director at a United States investment bank said. 'With the size of the holdings, any sales would obviously have to be at a discount. 'If you are an investor, you're going to want to wait a little bit.' Still, he said he was surprised by how much the ratio had shifted. 'We'd like to look into it,' he said. 'An unwinding of a large position will obviously have an impact on volatility of underlying shares.' Daily stock market turnover has averaged a dismal $4.26 billion this year, compared with $9.5 billion in the same period last year. Volumes, however, have been healthy on the futures exchange, where open interest reached 62,882 on Tuesday. As a result, the value of HSI futures has ballooned as a percentage of cash market turnover. The ratio was at 257.4 per cent in January, compared with 175 per cent in January last year. In the two trading weeks between February 8 and 19, the ratio was 368.15 per cent. Last Friday, Secretary for Financial Services Rafael Hui Si-yan noted that the cash versus futures volumes were 'not too normal', but he expected the situation would 'not be permanent'. Analysts said the slower volumes in the stock market could be explained by reasons more mundane than the overhang of the portfolio, but they also noted that a decision was due soon as to which investment banks would win the advisory mandate. 'The Government portfolio is on the list of concerns,' said Guinness Flight Hambro Asia chief investment officer Robert Conlon. 'We may be in need of some sort of action on the fund and the only possible action would be selling, not buying more. 'I think the other reason is that we haven't had that much in the way of interest rate cuts and we're having to absorb some fairly nasty earnings reports.' In the meantime, the futures market offers greater liquidity. 'Institutional investors are looking for liquidity first and foremost,' Richard Cawsey at Morgan Stanley Dean Witter said. 'So it means playing in a few blue chips. 'Or, if you want broad exposure to Hong Kong, using futures is the most liquid alternative.' Mr Cawsey said investors had increased hedging activities amid a weakening of the yen and other regional currencies. 'With the yen doing what it's doing, there's a heightened sense of risk,' he added. A derivatives trader at a European bank said: 'If you're a hedge fund or a big institution, your futures order may at most be 10 per cent of the contract's turnover. But if you're making a big order on an equity these days you could account for 20 to 30 per cent of the stock's turnover [except for market heavyweight HSBC].' Brokers stressed that local retail players continued to account for more than 60 per cent of daily turnover in index contracts. J.C. Allemand of French-trading house Fimat Futures said that Hong Kong professional investors and corporates returned to the market in January after closing their books early last year, when futures volumes were suffering. 'It's a seasonal thing more than anything,' Mr Allemand said. Traders also said traditional fund managers were relying more on futures. 'People think the Fidelity's [large US fund-management group] of the world can only trade equities but that's not true,' a trader said. 'Fidelity has 10 futures accounts [in Hong Kong].'