By Yonnex Li in Singapore
Chinese brokerages are testing financial waters in Singapore, diversifying their revenue streams after riding a strong but waning equities wave in Hong Kong.
Industry observers say Singapore boasts bigger futures, bonds and commodities markets that Chinese players see as a new-found bonanza. Hong Kong, by contrast, is heavy reliant on equities, leaving securities firms with limited revenue streams that won’t hold up as broad-market transactions contract.
Haitong International Securities Group Ltd. (00665.HK), the offshore arm of China’s No. 2 broker, is among those following the opportunities south. It announced Jan. 22 that it had secured stock and future broking licenses in Singapore, its first overseas operations beyond Hong Kong. And last year Shanghai-based Shenyin & Wanguo Securities Co. Ltd. gained a stock trading permit in the city-state.
“Hong Kong captured well the opportunities in 2000 when China pushed through the listings of big companies, making itself an outperformer in equities,” Haitong International deputy chairman and chief executive Lin Yong said in Singapore.
“But Hong Kong now has to challenge itself to press forward in terms of commodities, futures, forex and fixed income.
“Those areas are where Singapore has been doing well due to geographical advantages.”
Hong Kong has been a traditional hub for Chinese securities and asset management firms in their global march, a trend that intensified after Beijing granted the city cross-border investment quotas under the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme in late 2011. The influx of cash-rich mainland companies exposed local rivals to fierce competition, resulting in a wave of shutdowns of smaller players.
Analysts say that investment tide is now turning to Singapore and its even broader range of financial products. Coupled with the 50 billion yuan (US$8.3 billion) of RQFII quota awarded to the country in October, the door is now opening wider to Chinese companies keen to offer services and products in the so-called redback.
“As Singapore develops itself into a renminbi hub, we see business opportunities there,” said Black Bai, deputy general manager at Shenyin Wanguo Securities (HK) Ltd., which was among the first brokerages to obtain an RQFII quota in Hong Kong.
Haitong International is considering applying for 500 million yuan to 1 billion yuan of RQFII quota through its Singapore start-up, as well as an asset management license, Lin said. He expects an investment period of one to two years before the new operations break even.
A crowded playground and declining transaction volume in Hong Kong has forced some local brokers out of business. The industry has also had to confront lower fees and rising competition from banks, observers say.
According to data from the Hong Kong stock exchange, the average daily securities turnover last year was HK$62.6 billion (US$8.1 billion), up 16 percent from HK$53.9 billion in 2012. The volume, however, was considerably down from the HK$69 billion level seen in 2010-2011.
Fees have dropped for brokers since 2003 when bourse operator Hong Kong Exchanges and Clearing Ltd. (HKEx) (00388.HK) scrapped a brokerage commission floor of 0.25 percent of the value of transactions. Fourteen brokerages ceased trading last year, double the number in 2011, according to filings posted on the HKEx website.
“The challenges facing mainland and Hong Kong securities firms are very different. While the former face competition on a global battlefield, the latter are very much under pressure from tough domestic conditions,” Bai said. His firm has set up offices in Tokyo and Seoul as part of an Asia expansion plan.
About one-third of 159 stockbrokers polled by the Hong Kong Securities Association backed calls for the Hong Kong bourse to reinstate the broker commission floor. About 41 percent said cutting stamp duty would help improve their business.
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