Hong Kong equity data supplied by IHS
- Hong Kong is the second largest market in Asia
- The $247m of revenues generated in 2016 missed the 2015
total by over 30%
- The disappointment was driven by fees which shrank by a
quarter to 1.52%
- Balances also contributed to falling revenues as they
fell by 10% on average to $15.4bn
- Holders of China Huishan Dairy generated over $31m of
Inventories also fell, with an 8% decrease in lendable to
Last year was not a particularly good one for securities
lending in Hong Kong. Gross revenue totalled (US) $238m in
2016, down 34% from US$358m the previous year, swopping places
in the league tables with Japan (which increased from US$196m
by 50% to US$294m). Nonetheless, it was the second greatest
revenue generating market in Asia Pacific.
"Average rates decreased a lot over the past year," notes Ariel
Winiger, head of secured financing Asia Pacific, Societe
Generale. "Rates [fees] reduced on average by about 30%. I see
no indication for this to turn upwards again – it
could go lower – but this really depends on corporate
There are still isolated pockets of high fees. "The only
exception is China-based ETFs, which are heavily in demand,"
says Winiger. "The fees come in and out – sometimes
they are traded at a really high level but it is quite
volatile. It is definitely a good trade but the problem here is
that not many lenders can lend ETFs so the holdings are
At the moment there is not enough supply, in part because
interest in China is not particularly high, investors are
typically more cautious than bullish. However, there is also
the question of ownership. "The main investors are retail ones
and these stocks do not normally come to the lending market,"
Chamil Ioussoupov, head of equity finance Hong Kong, Natixis
says: "The biggest impact we saw in 2016 was the development of
the Chinese story. China ETFs absolutely hijacked the story of
the Hong Kong stock lending market."
At the beginning of the year the inventory of private banks was
not targeted but as soon as Chinese ETFs became hot people
rushed to the private banks to fund the supply.
"The interesting thing was that the market corrected itself,"
says Ioussoupov. "The effort of people trying to get the ETF
supply in the first part of the year paid off and the market
naturally cooled off in the second part. Because ETFs were very
hot, people found an alternative way to fund the supply and the
market normalised, as happens in Europe."
The only major change to the equity market was the Shenzhen
Connect going live at the end of last year. As with the
established Shanghai Connect, the stock lending facility is not
really workable. It is reasonable to assume that the facility
has been consciously implemented in a way that does not foster
activity and that Chinese regulator will make changes if and
when its wants lending to take off.