Hong Kong Financial News

People in Hong Kong will soon have a much better online platform to trade Hong Kong stocks as E*Trade Hong Kong is rolling out its stock trading platform. The online trading platforms that other brokerages in Hong Kong have are just plain pathetic.

On the other hand, if you are in the U.S. and want to start trading in the Hong Kong stock market, you can also use E-trade too. You can open a global account in E*trade where you can trade equities in Canada, France, Germany, Hong Kong, Japan and the UK.

January 16th, 2009 | Tags: etrade, Hong Kong | Category: Uncategorized | Comments (3)

In Hong Kong, this type of accumulator / decumulator was very extremely popular in 2007 among all private banks. Private banking clients were making good money every day that time. But things change quickly and in this bear market environment these investores are incurring big losses every day with these accumulator contracts that were started during the bull year. The media has even given accumulators a very appropriate name of “I kill you later”.

What are these contracts actually? If you are familiar with options, they are actually a set of one long in-the-money call option, and two short out-of-the-money options. Let’s look at a simple example of one year HSBC accumulator contract.

Suppose the share price of HSBC is HK$100. If you buy a one-year accumulator contract, here is what you will get on each trading day:

You will get to buy a certain number of HSBC shares at a set price, usually at a discount to the current share price, e.g. HK$ 97, for the entire year.

So as long as the share price of HSBC is above $97, you can receive the shares and sell the shares on the market, and you make money every day for one year!

Of course there are catches. It will be very costly to long a series of call options. To make the transaction cheaper, the call option is a knock-out option because it is cheaper. A knock-out option limits the upside you can get. For example, if the knock-out value is HK$ 105 and one day the share price is above HK$105, the whole contract expires and you won’t be receiving any more shares from that day onward.

Furthermore, to make the accumulator cheaper, the investor are selling two puts to subsidize the cost of the knock-out call. When shorting a put, the investor receives share at a higher price when the share price is below the strike price. Let’s say the put strike price in the above HSBC accumulator example is $92: when the current share price is $90, the investor will be required to receive a certain number of shares at $92. The investor is losing $2 per share he receives. And to make the matter worse, since you are shorting two puts for each call, you will be receiving twice the number of shares at $92! With the stock market losing more than 50% this year, we can see that there are a lot of private banking clients who are receiving lots of shares every day at a price much higher than the current price!

Basically with an accumulator, you’ve got limited upside but doubled unlimted downside.

A decumulator works the opposite way. This is essentially the opposite of an accumulator. The investor longs a put and shorts two calls.

November 1st, 2008 | Tags: accumulator, decumulator, Hong Kong, private banks | Category: Uncategorized | Comments (5)

No more sugar-glazed donuts in Hong Kong soon! US-based Krispy Kreme (KKD) franchisees in Hong Kong are getting liquidated. This time the financial turmoil has gone through a full circle: the crisis first started with subprime in the US, then it spread to HK, and now it is affecting a US-based company!

There are seven stores in Hong Kong. Five will be closed immediately and the other two in the Hong Kong International Airport will remain operational until further notice.

I am always amazed at how these donuts can become more popular in Asia than in the US. In the US, Krispy Kreme was a fad: every one wanted to try their deep-fried sugar-glazed donuts at least once, but then after a while people seem to forget about it and become worried about the unhealthiness of these sugar blocks. But, to my amazement, I saw in Tokyo last year that there were actually people lining up for Krispy Kreme during lunch! And in Hong Kong, the stores were definitely more packed than those in the US.

Surprisingly KKD is up 4% at this very moment and is not affected by the HK liquidation at all. But I am happy to know that soon the smell of those oily deep-fried donuts will disappear in Hong Kong.

October 27th, 2008 | Tags: Hong Kong, KKD, Krispy Kreme, liquidation, Tokyo | Category: Companies | Leave a comment

This only happens in Hong Kong. Many Hong Kong normal residents are losing their fortunes (for some, their life fortunes) with the bankruptcy of Lehman Brothers.

Apparently many consumer banks were offering products arranged or guaranteed by Lehman to normal retail investors in Hong Kong. The products include mini bonds (bonds with smaller denomination that can suit normal people’s appetite) that offer higher yields than normal time deposits, structured products such as equity linked notes (ELN) whose performance are linked to the performance of a basket of shares. But as these products are structured and guaranteed by Lehman, they have become more or less worthless paper by now.

Retail investors were questioning at the ways these products were sold to them. Many of them didn’t even know that the products they bought were backed by Lehman when the banks sold the products to them. There have been demonstrations and protests outside the consumer banks that have been offering these products (ABN Amro, Bank of China, Dah Sing, to name a few).  Protesters were getting emotional and the protests were often ended in a sour note.

Who’s at fault this time? Many question the selling tactics used by most sales agents in the consumer banks.  What do the salespersons care most? Of course the commission / revenue that they would bring in when selling to their clients. Do they really care whether the products are suitable to their clients? I don’t think so. An old man in the protest is a big victim – originally he had put all his savings in time deposits, but then the salesperson told him he could get a higher yield with no additional risk with some bonds guaranteed by Lehman, he put HK$ 10 million out of his HK$13 million saving in Lehman mini bonds. Now the old man has lost $10 million but then the salesperson does not need to bear any responsibility at all!

The government should bear some responsibility as well. All these mini bonds and structured bonds were in popular demand during the bull market last year. Did the HKMA or SFC talk to the general population about the riskiness of these products? Not even a word!

Sadly a financial crisis has happened and there are no more investment banks in the US as of today. I guess if everything was hunky-dory, everyone was making money, and no investment banks had failed,  no one would be questioning how consumer banks were selling these products to normal population who are not too sophisticated. But then the unusual has happened and now retail investors believe that they have been cheated and are angrily demanding their money back.

October 5th, 2008 | Tags: HKMA, Hong Kong, Lehman Brothers, mini bonds, retail investors, SFC, structured products | Category: General Trends | Leave a comment

While the financial tsunami continues to roar over the world, the Senate is going to vote on the 700 Billion bailout plan, and more and more milk-related food products all over the world are tainted with melamine, Hong Kong is having a small break today with the National Day holiday. This year’s National Day fireworks give a (false?) sense of pride and prosperity before people heading back to work the next day to face with the financial turmoil again. This excerpt of the fireworks (last 5 mins of the fireworks – the most spectacular part) is taken by me outside the Inter Continental Hotel in Tsim Sha Tsui. Enjoy!

October 2nd, 2008 | Tags: fireworks, Hong Kong, National Day, October 1st | Category: Uncategorized | Leave a comment

The big 4.5% drop in Chinese stock market on Olympics opening day was probably due to a scare in terrorism on the opening day in China. While there was a small bomb / smoke machine in Causeway Bay in HK on Friday, there wasn’t other terrorist news as far as I know.

With the opening ceremony going pretty in order last Friday and the big jump in US equities Friday night, Asia will definitely open a lot higher on Monday. And the Chinese markets should continue to go up because of the successful Olympics opening and the worry of terrorists attacking during the Olympics opening ceremony is gone.

LONG Hong Kong Index, Shanghai Index on Monday

August 10th, 2008 | Tags: Hong Kong, olympics, Shanghai, Stock Market, terrorists | Category: General Trends | Leave a comment

Shanghai A fall over 10% in the past week. My gut feeling is that it has fallen too fast so it is mostly panic selling. This directly affects the HK stock market too.

When will the Chinese government come out and provide support to the stock market? It seems like this time there is not much noise around asking the government to intervene. Does it mean that the government is not going to intervene this time? Fingers crossed.

June 18th, 2008 | Tags: Hong Kong, Shanghai, stock index | Category: General Trends | Leave a comment

If you only have an US securities account and want to have exposure in the Hong Kong stock market, the easiest and most efficient way is buying an ETF. There are multiple ETFs in the US that have exposure in the HK market, but the most established, high volume traded ETF that has exposure in the HK market is definitely iShare MSCI Hong Kong Index Fund (EWH). Nevertheless, this famous HK ETF has its shortcomings.

The top five holdings in the fund are: Cheung Kong (1 HK), Sun Hung Kai (16 HK), Hong Kong Stock Exchange (388 HK), Hutchison Whampoa (13 HK) and Hang Seng Bank (5 HK). The ETF definitely covers the most important companies in the actual HK economy. But people may ask, “Where is HSBC (5 HK) or China Mobile (941 HK)?” These two stocks are the big elephants in the Hang Seng Index. These two stocks often contribute a few hundred points to the daily rise or drop in the Hang Seng Index; yet they are not included in the MSCI HK index. The reason behind this is that MSCI do not include these two stocks because these two companies have high foriegn ownership (HSBC is the biggest bank in HK, but then it is a British Bank; China Mobile is the largest mobile operator inside mainland China).

These days the HK stock market correlates more with the mainland stock market than the US market, but yet this famous ETF does not hold any Chinese state enterprise companies listed in Hong Kong. Nor does it even hold HSBC, the big elephant in HK stock market. Shouldn’t the MSCI people re-look at what’s in EWH currently and re-define their compsition?

May 12th, 2008 | Tags: Cheung Kong, China Mobile, EWH, Hang Seng, Hong Kong, Hong Kong Stock Exchange, HSBC, Hutchison Whampoa, iShares, MSCI, Sun Hung Kai | Category: ETFs | Leave a comment

Panic Selling in China plus last Friday’s big drop causes the Hang Seng index to drop more than 800 points today. Rumors said that the Central government will raise interest rates and this has caused  today’s panic selling. But I believe that the government will soon support the stock market. They won’t let the stock market go down in free fall and affect the general economy of China.

April 14th, 2008 | Tags: China, Hong Kong, Panic Selling, Stock Market | Category: General Trends | Leave a comment