The View From Hong Kong: It’s time for Hong Kong to Extend Trading Hours
The operators of Hong Kong’s stock exchange want to extend their four-hour trading day by as much as 90 minutes. The most ridiculous aspect of the debate is that there even is one.
Stock trading in Hong Kong begins at 10 a.m. and runs until 4 p.m., interrupted by a two-hour lunch break. That makes it the shortest trading session of any major global exchange.
Traders in Paris work more than eight hours, finding time to dine while the market remains open. In New York and even Bermuda, securities trade for 6 1/2 hours. (Shanghai’s hours are as short as Hong Kong’s but capital controls help insulate China’s bourses from global competition.) However, resistance to the plan among Hong Kong’s brokerage community remains fierce. Brokers, who were instrumental in shutting down a proposal nearly a decade ago to extend the day to as long as 11 hours, say they need their long lunches to entertain clients.
Such limited business hours in a 24-hour city, where people frequently browse in shops for polo shirts or iPhones past midnight, strike some as a bit outdated.
“As we stroll around Hong Kong during the lunch hour, we find that banks, shops, estate agents and travel agents are all still open and the trains, buses, trams and ferries are still running, serving the public, and their staff manage to rotate their lunch hours to achieve this,” wrote David Webb, a shareholder activist, on his website on Sept. 14.
The problem, he believes, is the exchange’s status as the sole venue for share trading. “Only in a monopoly environment can a business get away with such poor levels of customer service,” said Mr. Webb, a former nonexecutive director at the exchange’s operator, Hong Kong Exchanges & Clearing Ltd.
So far, the limited hours haven’t prevented Hong Kong from attracting an impressive array of new listings. Last year, companies raised 248.2 billion Hong Kong dollars (US$32 billion) through initial public offerings in Hong Kong, more than anywhere else.
This year is also looking bright. American International Group Inc. is seeking as much as US$15 billion in a listing of its pan-Asian life insurer AIA Group Ltd., which could be the world’s second-biggest IPO this year. In July, Agricultural Bank of China Ltd. raised US$22.1 billion from a dual listing in Hong Kong and Shanghai in the world’s biggest-ever IPO. Still, it is no time for complacency. The exchange’s second-quarter net profit fell 16% amid lower daily trading volume, which has declined for four quarters in a row.
One of the stronger reasons to extend Hong Kong’s trading hours is to align them with those of mainland China’s bourses, which open earlier and have shorter lunch breaks. Increasing the overlap with the mainland is crucial, the Hong Kong exchange says, because more than 70% of its trading volume comes from mainland-related securities and the number of cross-listed products is likely to keep increasing, given the city’s role as China’s offshore yuan center.
The exchange has proposed shifting the morning session a half-hour earlier, opening at 9:30 a.m. and ending at noon. The afternoon session would start at 1 p.m. or 1:30 p.m., instead of 2:30 p.m., and trading still would end at 4 p.m.
The plan would shorten Hong Kong’s lunch break by as much as an hour and better align it with China’s Shanghai and Shenzhen securities markets, whose morning sessions start at 9:30 a.m. and finish at 11:30 a.m. The afternoon sessions start at 1 p.m. and finish at 3 p.m. in Shanghai and at 2:57 p.m. in Shenzhen, making the more-ambitious option proposed by the Hong Kong exchange to reopen at 1 p.m. the better one.
Synching with China’s bourses would help big investors who seek to maintain market-neutral positions. An event in China can completely change the market over lunch, making it challenging for traders at proprietary desks or hedge funds to position themselves over the break.
Longer hours are better for small investors, too. That point seems to have eluded the exchange in the arguments it has listed for its current proposal. But back in 2001, when it had hoped to eliminate the lunch break, it said that such a move would “accommodate trading by retail investors who cannot trade during normal office hours.”
Competitively, the exchange needs to do everything it can to make itself user friendly as more Chinese companies, the main source of new listings in Hong Kong, opt for domestic listings.
Hong Kong also will face new, stiffer competition from Shanghai once plans to allow international companies to list in the mainland become a reality.
Tokyo and Singapore are considering a bolder move to eliminate their lunch break altogether to become more competitive. Despite Hong Kong’s good fortune so far, it may need to eat faster, or be eaten.
By Kate O’Keeffe – Dow Jones Newswires