HK market placed among highest for dealing costs

Hong Kong is one of the costliest major markets to deal in, according to a service launched yesterday by Thomson Electronic Settlements Group (TESG) and GSCS Benchmarks.

The two groups have formed an operational risk-adjusted index designed to help fund managers assess financial return against non-investment risks, such as so-called friction costs and systemic costs.

GSCS director Richard Schwartz said that in the four years to December, Hong Kong incurred cumulative operational costs equivalent to 207.84 basis points, or 2.0784 per cent, placing it eighth of 20 major markets.

Singapore is the costliest in Asia, and fourth in the world, at 244.18 basis points. This compares with Spain at 306.42 basis points and Finland at 313.8, but also India, which is the costliest emerging market at 705, and Greece at 426.

The United States was lowest at 146.02 basis points.

The index measures the investment return, which reflects the performance of market indices; and operational costs, made up of friction costs caused by failed or delayed trades and systemic costs representing the 'insurance' cost to cover the risk of a major default.

'Analysis of the four-year history shows operational costs can shave 30-70 basis points off annual returns in major markets and 50-180 basis points in emerging markets. With large institutional portfolios, that can add up to significant sums,' Mr Schwartz said.

The index takes into account how quickly company dividends are paid, the time it takes before reaching client accounts and the speed with which applicable tax rebates are paid.

TESG managing director Kevin Milne said the index was designed in response to fund manager and custodian requests for more information on pricing related to settlement and dealing.