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Monday 3 November 2008
Small is the new big, says stockbrokers’ chief
With markets plunging around the world, being a stockbroker must rate as one of the toughest jobs at the moment. The Hang Seng Index has slumped more than 50 per cent in the past 12 months, a hair-raising experience for even the bravest of souls.
Kenny Lee sees minnows grabbing bigger slice of the market
Enoch Yiu 3 November 2008
With markets plunging around the world, being a stockbroker must rate as one of the toughest jobs at the moment. The Hang Seng Index has slumped more than 50 per cent in the past 12 months, a hair-raising experience for even the bravest of souls.
But Kenny Lee Yiu-sun, chairman of the Hong Kong Stockbrokers Association, is surprisingly upbeat. The tough times may be a good opportunity for small brokers like him to grab a bigger slice of the market from the industry big boys, he predicts.
“We may see the tables turn,” Mr Lee said. “The bigger players are likely to face tougher regulations” following controversies such as the one over the selling of minibonds.
Mr Lee believes the current crisis is not as serious as the market crashes of 1973, 1987 or 1997 but the implication for the local securities market would be far-reaching.
The 51-year-old broker started his career as an accountant but shifted five years later to the more exciting world of markets.
His first firm was the positive-sounding Cheerful Securities. After working at several other local firms, he is now the chief executive of First China Securities, which focuses on the mainland and Hong Kong.
He believes his firm and the city’s 400 other small brokers are better off than the bigger players as they provide more flexible and personal services to clients.
Mr Lee is married, with a daughter.
We are now facing the most serious financial crisis since the Depression in 1929. How will this affect the brokerage industry in Hong Kong?
The local brokerages will not face a serious problem as we have little direct exposure to the US property market. Overall, Asian countries have less exposure to the US market, so they have not been as hard hit by the meltdown. Also, economic growth in Asia is still strong, so we are still doing relatively well.
With big players in such trouble - Merrill Lynch has changed hands, while Lehman Brothers went bankrupt - will there be new opportunities for the small players?
Many big players on Wall Street are in deep trouble. Goldman Sachs and Morgan Stanley will transform themselves into commercial banks. The crisis will lead them to cut their leverage and gearing, and they are likely to focus more on Asian markets, where there is high growth. This means they will continue to expand in Hong Kong and on the mainland, so the competition will continue to be keen.
Do you worry small brokers will be forced out of business amid the current crisis? Can these 400 small brokers survive?
Local brokers are in a niche market and have their own supporters. They are more flexible and provide a personal service to clients. This is why they can survive.
The recent crisis clearly indicates the big players also have problems and will receive tougher supervision from the regulators. Some commercial banks are alleged to have sold risky structured products to retail investors by misleading them, saying the risk was not high. These incidents may encourage retail investors to go back to traditional small brokers to trade stocks.
But according to the latest figures from the stock exchange, the market share of the 380 smallest brokerages has slipped to 8 per cent, down from a peak of 40 per cent in 2000. Are the golden days of the small local brokers over?
It is true the market share of the small brokers is declining. But their combined business volume stood at HK$98 billion in September, up from HK$17.8 billion in the same month in 2002. The message is clear - the smallest brokers have a smaller share of the market, but the pie is getting bigger. We are better off than before.
What do you want the government to do to help the local brokerage industry?
Firstly, they should regulate the big players more strictly. The recent crisis has shown that these big firms can also be losers in the market. Secondly, the regulator should curb the sale of structured products, which were created by the big investment banks and sold through commercial banks.
Finally, Hong Kong Exchanges and Clearing should offer more products to investors.
What are the major business opportunities and challenges for brokerage firms in the years ahead?
The major business opportunities are on the mainland. Although the market is not open, we have tried our best to integrate with the mainland by serving investors across the border through internet trading.
The main challenge faced by local brokerages is competition from the banks, which have a very good branch network and capital resources. Some mainland brokerages have set up in Hong Kong and are big players too.
Do you think local brokers will be replaced by banks eventually?
The recent complaints by investors against the way commercial banks have sold structured products like the Lehman minibonds and the accumulators have led investors to lose confidence. The banks sold them to clients in packages that made them appear to be safe investments, but in fact they were not. This resulted in many people losing their fortunes. Investors now want to go back to basics.
In 2003, the government forced brokerages to abolish the minimum 0.25 per cent commission on trades. Five years on, what has been the impact on the local industry?
This has been a trend in other international markets. The abolishment of the minimum brokerage commission led to more competition, and some brokers offered a commission rate as low as 0.1 per cent. However, because the pie is getting bigger and the turnover is higher, many small brokers can still survive.
The major cost of stock transactions in Hong Kong now is stamp duty charged by the government, and it should reduce or abolish that.
Internet trading has become increasingly popular. Will the internet replace brokers one day?
We should be thankful for the internet, or we would not have such high turnover. Many mainland tourists like to open accounts with Hong Kong brokers when they travel to the city. They then trade through the internet. This trend will continue, as the mainland market has not yet opened and the yuan is not yet freely convertible, and mainlanders like to invest here.
During your career, you have experienced many crises. Which was the worst?
For me, the worst was the 1997 Asian financial crisis. Cheerful, the company where I worked, had a run and eventually changed owners. But in terms of numbers, the 1973 crash was the most serious, in that the index dropped almost 95 per cent. The second-worst was the 1987 crash, when the Hang Seng slumped 60 per cent.
What lessons do you think we should learn from the crisis?
Don’t believe in the myth that the big players will never collapse. The investment banks created all these structured products and over-the-counter derivatives. The big commercial banks packaged them as safe products to sell to retail investors. The regulators should investigate and introduce regulation to prevent a similar crisis happening again.
Do you invest yourself?
I invest for the long term and take the long-hold strategy. I hold HKEx, Industrial and Commercial Bank of China and my own company’s shares.
Can you offer any investment tips for investors?
It may be the right time to buy now, because the market has almost bottomed out. We can assume the mainland economy is still expanding and that inflation in commodities will drop. Many shares have dropped substantially, and I believe the big companies in the financial fields, such as ICBC, are worth buying now.
If I interview you again in a year’s time, where do you think the Hang Seng Index will be?
The Hang Seng Index will reach about 28,000. The US$700 billion rescue plan passed by the US House of Representatives strengthened confidence in the market. The mainland will keep expanding its economy, and Asia and Hong Kong are also in good shape. Investors will come back to invest in H shares and other stocks.
1 comment:
Small is the new big, says stockbrokers’ chief
Kenny Lee sees minnows grabbing bigger slice of the market
Enoch Yiu
3 November 2008
With markets plunging around the world, being a stockbroker must rate as one of the toughest jobs at the moment. The Hang Seng Index has slumped more than 50 per cent in the past 12 months, a hair-raising experience for even the bravest of souls.
But Kenny Lee Yiu-sun, chairman of the Hong Kong Stockbrokers Association, is surprisingly upbeat. The tough times may be a good opportunity for small brokers like him to grab a bigger slice of the market from the industry big boys, he predicts.
“We may see the tables turn,” Mr Lee said. “The bigger players are likely to face tougher regulations” following controversies such as the one over the selling of minibonds.
Mr Lee believes the current crisis is not as serious as the market crashes of 1973, 1987 or 1997 but the implication for the local securities market would be far-reaching.
The 51-year-old broker started his career as an accountant but shifted five years later to the more exciting world of markets.
His first firm was the positive-sounding Cheerful Securities. After working at several other local firms, he is now the chief executive of First China Securities, which focuses on the mainland and Hong Kong.
He believes his firm and the city’s 400 other small brokers are better off than the bigger players as they provide more flexible and personal services to clients.
Mr Lee is married, with a daughter.
We are now facing the most serious financial crisis since the Depression in 1929. How will this affect the brokerage industry in Hong Kong?
The local brokerages will not face a serious problem as we have little direct exposure to the US property market. Overall, Asian countries have less exposure to the US market, so they have not been as hard hit by the meltdown. Also, economic growth in Asia is still strong, so we are still doing relatively well.
With big players in such trouble - Merrill Lynch has changed hands, while Lehman Brothers went bankrupt - will there be new opportunities for the small players?
Many big players on Wall Street are in deep trouble. Goldman Sachs and Morgan Stanley will transform themselves into commercial banks. The crisis will lead them to cut their leverage and gearing, and they are likely to focus more on Asian markets, where there is high growth. This means they will continue to expand in Hong Kong and on the mainland, so the competition will continue to be keen.
Do you worry small brokers will be forced out of business amid the current crisis? Can these 400 small brokers survive?
Local brokers are in a niche market and have their own supporters. They are more flexible and provide a personal service to clients. This is why they can survive.
The recent crisis clearly indicates the big players also have problems and will receive tougher supervision from the regulators. Some commercial banks are alleged to have sold risky structured products to retail investors by misleading them, saying the risk was not high. These incidents may encourage retail investors to go back to traditional small brokers to trade stocks.
But according to the latest figures from the stock exchange, the market share of the 380 smallest brokerages has slipped to 8 per cent, down from a peak of 40 per cent in 2000. Are the golden days of the small local brokers over?
It is true the market share of the small brokers is declining. But their combined business volume stood at HK$98 billion in September, up from HK$17.8 billion in the same month in 2002. The message is clear - the smallest brokers have a smaller share of the market, but the pie is getting bigger. We are better off than before.
What do you want the government to do to help the local brokerage industry?
Firstly, they should regulate the big players more strictly. The recent crisis has shown that these big firms can also be losers in the market. Secondly, the regulator should curb the sale of structured products, which were created by the big investment banks and sold through commercial banks.
Finally, Hong Kong Exchanges and Clearing should offer more products to investors.
What are the major business opportunities and challenges for brokerage firms in the years ahead?
The major business opportunities are on the mainland. Although the market is not open, we have tried our best to integrate with the mainland by serving investors across the border through internet trading.
The main challenge faced by local brokerages is competition from the banks, which have a very good branch network and capital resources. Some mainland brokerages have set up in Hong Kong and are big players too.
Do you think local brokers will be replaced by banks eventually?
The recent complaints by investors against the way commercial banks have sold structured products like the Lehman minibonds and the accumulators have led investors to lose confidence. The banks sold them to clients in packages that made them appear to be safe investments, but in fact they were not. This resulted in many people losing their fortunes. Investors now want to go back to basics.
In 2003, the government forced brokerages to abolish the minimum 0.25 per cent commission on trades. Five years on, what has been the impact on the local industry?
This has been a trend in other international markets. The abolishment of the minimum brokerage commission led to more competition, and some brokers offered a commission rate as low as 0.1 per cent. However, because the pie is getting bigger and the turnover is higher, many small brokers can still survive.
The major cost of stock transactions in Hong Kong now is stamp duty charged by the government, and it should reduce or abolish that.
Internet trading has become increasingly popular. Will the internet replace brokers one day?
We should be thankful for the internet, or we would not have such high turnover. Many mainland tourists like to open accounts with Hong Kong brokers when they travel to the city. They then trade through the internet. This trend will continue, as the mainland market has not yet opened and the yuan is not yet freely convertible, and mainlanders like to invest here.
During your career, you have experienced many crises. Which was the worst?
For me, the worst was the 1997 Asian financial crisis. Cheerful, the company where I worked, had a run and eventually changed owners. But in terms of numbers, the 1973 crash was the most serious, in that the index dropped almost 95 per cent. The second-worst was the 1987 crash, when the Hang Seng slumped 60 per cent.
What lessons do you think we should learn from the crisis?
Don’t believe in the myth that the big players will never collapse. The investment banks created all these structured products and over-the-counter derivatives. The big commercial banks packaged them as safe products to sell to retail investors. The regulators should investigate and introduce regulation to prevent a similar crisis happening again.
Do you invest yourself?
I invest for the long term and take the long-hold strategy. I hold HKEx, Industrial and Commercial Bank of China and my own company’s shares.
Can you offer any investment tips for investors?
It may be the right time to buy now, because the market has almost bottomed out. We can assume the mainland economy is still expanding and that inflation in commodities will drop. Many shares have dropped substantially, and I believe the big companies in the financial fields, such as ICBC, are worth buying now.
If I interview you again in a year’s time, where do you think the Hang Seng Index will be?
The Hang Seng Index will reach about 28,000. The US$700 billion rescue plan passed by the US House of Representatives strengthened confidence in the market. The mainland will keep expanding its economy, and Asia and Hong Kong are also in good shape. Investors will come back to invest in H shares and other stocks.
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