Hong Kong's dying breed of stockbrokers can carve a niche in Greater Bay Area by focusing on wealthy but neglected customers
Greater Bay Area offers new opportunities for Hong Kong's struggling stockbrokers as they can tap the unmet investment needs of thousands of rich individuals in the integrated economic and business hub of 70 million people, says an industry veteran.
"There are many wealthy customers in the bay area with funds that do not meet the minimum threshold of international private banks, but they can be the next big clients for local brokers," said Stephen Hui Chiu-chung, chairman and chief executive of Luk Fook Financial, in an interview with the South China Morning Post.
The 73-year-old broker says his company is an example of how a mid-tier local brokerage can benefit from the GBA. Hong Kong lawmaker Christopher Cheung Wah-fung, who is also the chief executive of Christfund Securities, is hoping its peers will be allowed to aim for a slice of the wealth management business in the bay area.
Mainland customers are an important source of Luk Fook's business, representing about 40 per cent of its stock trading and 90 per cent of its futures volume. Hui, who has been in the trade since 1971, believes that with further deepening of ties between Hong Kong, Macau and nine mainland cities that form the scheme, business will only grow.
Stephen Hui Chiu-chung, chairman and chief executive of Luk Fook Financial. Photo: Enoch Yiu alt=Stephen Hui Chiu-chung, chairman and chief executive of Luk Fook Financial. Photo: Enoch Yiu
Established in 2011 with 70 staff, Luk Fook Financial was set up by major shareholders of Hong Kong-listed jewellery retailer Luk Fook Group. Nine years on, the broker has doubled its staff to 160 and has a capital base of about HK$200 million (US$25.8 million). It offers trading in stocks, futures, mutual funds and insurance products.
But Hong Kong's stockbrokers are a dying breed. Falling commission income, higher technology and compliance costs, stricter margin-financing rules as well as a drop in takeover interest from mainland buyers have all contributed to the winnowing out of the world's most crowded brokerage market.
Some 35 small brokers closed shop for good in the 12 months to March, according to stock exchange data, the fastest clip since records began in 2003. That left 600-odd of them still standing in the shadow of giant mainland and Wall Street-backed brokerages.
SCMP Graphics alt=SCMP Graphics
Hong Kong's small, family-run stockbrokers flourished in the 1980s, swelling to around 900 before the 1987 stock market crash pushed many out of the door. The number dwindled to 413 firms in 2005 before climbing back up to 606 at the end of last year, encouraged by interest from mainland brokers.
"Many of these small brokerages who have shut shop were run by owners who have reached retirement age," Hui said. "Besides, brokers do not want to make any additional investments to meet customers' needs as returns may not materialise."
However, to capture business opportunities in the Greater Bay Area, Hui said brokers must be prepared to invest a lot more in technology to ease online trading and promote their brand building in the mainland.
"Hong Kong is still considered by many mainland investors as the ideal location for investment as it has a lot products and they can access international markets. The residents in the bay area need only about an hour by car or by train to come to Hong Kong. They can open an account here or meet their brokers to discuss their portfolio and then trade online from the mainland," Hui said.
Chinese regulations bar Hong Kong stockbrokers from setting up shop in the mainland, but they can establish promotional offices to conduct investment seminars. Luk Fook has set up 15 such offices in cities including Guangzhou, Shanghai, Xiamen and Hengqin. The familiarity of its sister firm Luk Fook Jewellery, which has more than 1,800 shops in China has worked in its favour.
"I believe there is still room for Hong Kong stockbrokers to grow because they can deliver personal service that some big banks cannot," he said.
Lawmaker Cheung also believes the Greater Bay Area can provide opportunities for local brokers.
"We want Beijing to allow local brokers to join the wealth management connect scheme under the Greater Bay Area project," he said.
Beijing in May announced additional plans for the bay area, including a connect programme to allow mainlanders to buy fund wealth management products via banks in Hong Kong and Macau. Cheung is hoping this can be extended to stockbrokers as well.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
