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SCMP Reporter

SO you have $50,000 to spare and you want to start a stock portfolio?  You can forget about investing in Cheung Kong, Hutchison and Sun Hung Kai Properties, although you might be able to make the minimum investment in China Telecom or Henderson Land - if their stock price does not rise too far before you get to your bank or broker.

 Blue-chip stocks should be a good investment for the novice investor.

 They are safe long-term bets and the ideal base for a portfolio - many investors like to start with a solid, dependable equity investment from Hong Kong's first-liners that they can keep for a number of years.

 Then, as they gain experience, they may add the more volatile, smaller companies, known as second or third liners, before having the confidence to trade in red chips, tech stocks or whatever is hot.

  But for many novices, the blue chips are too expensive.

 A single board lot - the minimum amount of a stock you can buy - can cost up to $75,000.

 Most of the Hang Seng Index stocks are more than $100,000 and those under $5,000 per board lot are rare.

 When investors realise they have to buy Cheung Kong stocks in multiples of about $70,000, it can be a shock.

 'I think some people are disappointed,' said Howard Gorges, the vice-chairman of South China Brokerage.

 The Stock Exchange of Hong Kong (SEHK) is not sure why or when the practice of selling by board lot originated, but it has been used by the exchange at least since its creation in 1980, when four exchanges were brought together.

 'It's a tradition,' said a spokesman.

 'It's easier for calculation purposes.'  Most exchanges use board lots because dealing in individual shares is awkward for stock brokers and investors.

 The US Nasdaq market initially began trading without board lots, but now also uses the system.

 Some exchanges set a standard board-lot size, such as 100 shares; the SEHK allows its members to set their own.

 The use of board lots is not hard and fast; investors can trade in 'odd lots', and may even pay 10 to 20 per cent less for the shares, but they risk getting an even lower price when they sell.

 Few people have odd lots to offer and they are much harder to sell on afterwards.

 Khoo Ken-wee, managing director of Celestial Asia Securities Holdings, said there were many reasons why investors might want to buy odd lots, but he felt they did not appeal to first-time investors.

 'The person buying the odd lots might want to put odd lots together,' said Mr Khoo.

 A 10 to 20 per cent discount for odd lots was normal, but he had seen one go for about 50 cents a share while the stock was trading at $2.50 per share for the standard lots.

 The problem for investors is that those with the most expensive board lots are also some of the best investments.

  Mr Gorges said stocks such as HSBC, Hutchison, Cheung Kong and Hang Seng Bank were among the safest investments on the SEHK and often appealed to the retail investor.

 'You can never go wrong with [them],' he said.

 'They're worth it, even if you have to pay a little bit more.'  His four picks are among the most expensive on the local exchange.

 HSBC, which sells its shares in board lots of 400, would be $38,400 for a single lot this week; Hutchison, with 1,000 shares per lot, would be $76,750; Cheung Kong's 1,000-share board lot would be $69,750; and Hang Seng Bank, at just 100 shares per lot, would be a relative bargain at $8,850.

  The cheapest board lots among the companies in the Hang Seng Index are Bank of East Asia ($3,430), Citic Ka Wah Bank ($3,075), Guangdong Investment ($3,020) and Hongkong and Shanghai Hotels ($3,075).

 Beyond the 33 Hang Seng Index companies, many of the board lots are priced at less than $10,000. Examples of such companies include Daido Concrete ($229 for 1,000 shares), Vitasoy International (2,000-share lots for $5,100) and Dickson Group with 2,000-share lots at $420.

  Brokers admit that high board-lot sizes exclude many retail investors from the blue chips, but they say retail investors are often drawn to the second and third liners anyway, which they think offer better potential for quick trades.

 At share registration company Central Registration Hong Kong, assistant managing director Clement Luk Pud-kun said he thought the optimum size for a board lot would give it a value of about $3,000-$5,000, but he admitted there was no pressure on the companies with much higher board lots to reduce their size.

 'It is up to the management of the company to decide whether they need to change it,' he said.

 Keeping board lots low might help spur investors to choose a stock, but companies such as Cheung Kong would gain little by reducing the size of its nearly $70,000 board lot.

 'I don't see any reason they might have for lowering it,' he said.

 Even if a novice investor had more than $70,000 to put into the stock market, brokers say there would be few who would want to invest in a single board lot.

 'The number of stocks [retail investors] can buy is very important psychologically,' said Lennon Chan Wing-lok, deputy managing director at Tai Fook Securities.

 'A single board lot is nothing.' 



Board-lot system puts the best out of reach for many