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Sunny days ahead for Hong Kong securities firms

By Lillian Liu (China Daily)
Updated: 2009-02-11 08:04

Stockbrokers in Hong Kong, who had a torrid time in the Year of the Rat, may have some reason to cheer in the Year of the Ox, even as their mainland counterparts huddle together and wait for the financial storm to pass.

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The stockbrokers could very well thank the curse of the poison securities if their luck does indeed change after the government goes ahead with its plan to ban the sale of third-party investment products.

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) have indicated their support to the idea that banks should separate their deposit taking and retail securities businesses.

The call for reform came after 43,000 Hong Kong investors lost money in "minibonds" of the collapsed Lehman Brothers that were sold at various local bank branches.

Tong Tang, executive director of Sun Hung Kai Financial, said the new rules would provide fair competition from brokers.

"Brokerage houses can utilize this opportunity to compete with banks for new investment clients. Until now, banks have taken advantage of retail banking customers."

No such relief is, in sight for mainland stockbrokers. Their limited product diversity makes it difficult for them to find shelters from the financial storm.

Heavily reliant on earnings from brokerage fees for stock trading, mainland securities firms recorded 40 percent to nearly 90 percent decline in profits last year, dragged down by the 65 percent fall in the benchmark Shanghai Composite Index.

Huaxin Securities, one of the leading securities firm on the mainland, said its net profit fell 89 percent to 50 million yuan last year compared with 2007. Guoyuan Securities said its net income last year fell 77 percent to 52.39 million yuan.

Analysts say the sluggish sentiment has been making it difficult for mainland companies to raise funds, significantly cutting off a major source of revenue for mainland securities firms.

The China Securities Regulatory Commission said mainland companies raised a combined 339.6 billion yuan from share offerings last year, down 56.4 percent year on year.

"Securities firms in Hong Kong offer more financial products such as derivatives and futures, as they provide more sources of income," said Ernest Chan, director of product research and business development at Convoy Financial Services Ltd in Hong Kong.

Haitong Securities, the mainland's second-largest listed brokerage, saw a 40 percent fall in profits last year.

CITIC Securities, the largest mainland brokerage, has said it would write down investment losses of around 500 million yuan in 2008.

Currently eight brokerages operate on the Shanghai and Shenzhen stock exchanges. Many analysts have forecast that they would post an earnings drop of nearly 56 percent.