Hong Kong's stockbroking industry is making an early entry into a bleak winter, as daily transactions and fundraising shrank amid the combination of a year-long US-China trade war with unprecedented civil unrest.
The industry, comprising 27,327 licensed traders in 594 firms, is likely to shrink by at least 10 per cent, beginning with back-office support staff, research and administrative clerks, according to the head of the industry guild.
"Facing shrinking income, brokerage firms have no choice but to cut some people, and I know some firms have laid off almost 10 per cent of their staff already," said Tom Chan Pak-lam, chairman of the Institute of Securities Dealers. "This is just the beginning. If the protests continue in the rest of this year, more lay-off will come."
Hong Kong's economy had been reeling from almost daily protest rallies, since a mob ransacked the city's legislature on July 1. What began as a peaceful civic protest against a controversial extradition bill on June 9 had descended into mayhem, with police firing tear gas almost every day to drive off mobs that are laying siege to police stations, public space and commercial streets.
The financial markets had not been spared the turmoil. Funds raised by initial public offerings (IPOs) in the first seven months dropped 30 per cent to HK$83.95 billion this year, with three companies shelving US$11 billion in combined fundraising since June.
The average daily turnover of Asia's second-largest stock market shrank 23 per cent in July to HK$68.7 billion (US$8.76 billion), compared with last year. A month earlier, when an estimated 1 million took to the streets on June 9, daily transactions fell by 24 per cent to HK$82.4 billion.
At a commission rate of about 0.1 per cent, the total fee income for the entire industry fell by about HK$40 million in June and July, compared with the same period last year, according to brokers' estimates.
"Many investment banks are finding it hard to sponsor fundraising and IPOs, and some have walked away or reduced their teams", said Joseph Tong Tang, chairman of Morton Securities. "This has led to more lay-off.
Hong Kong's top 20 brokers control two-thirds of the market's trading volume, while the top 100 brokers make up more than 90 per cent of daily transactions. That leaves more than 500 brokers fighting for the remaining 10 per cent of the market, valued at about HK$4 billion everyday on average in a typical year.
To make matters even worse, brokers are increasingly having to compete with the prospect of automated brokers and chatbots, compelling them to slash their fees to between 0.25 per cent and 0.1 per cent.