But let's look more closely at this inevitable thing. When you do, you begin to wonder whether that good old Anglo-American model is again about to be misapplied.
Where were commission rates prior to deregulation in the US market? They ran somewhere between 4 percent and 7 percent, right? In Hong Kong we're talking about disposing of a minimum of 0.25 percent, and people in the market tell me big traders have gotten unofficial rates as low as 0.08 percent. It's a shark-feed already.
What's going to happen after rates are freed? For a lot of the big houses, broking is likely to become a service used chiefly to draw other business in -- to broaden the base so as to compete in new issues, mergers and acquisitions, and so on. "Broking won't have to be profitable," a medium-sized fund manager predicts.
The knock-on effects of a market run in this fashion are considerable. Research is likely to suffer significantly as brokers scramble to cut costs, and one sector of the Hong Kong economy is likely to suffer most of all -- the small and medium-sized enterprises, the SMEs, that are in many ways the territory's backbone.
When the dust settles upon a deregulated market, the familiar names of houses still likely to conduct research will probably fit easily into a columnist's brief paragraph: Morgan Stanley Dean Witter & Co, Goldman, HSBC Holdings Ltd, Salomon Smith Barney Inc, UBS Warburg, and Merrill.
Then add a few possibles: BNP Paribas may continue on the research side, and so may Credit Lyonnais SA, DBS Vickers, and Deutsche Morgan Grenfell.
Even with the possibles, though, it is not a lengthy list. And even now the list of brokers researching stocks in the SME sector is yet more limited. The names that come to mind are only three: CLSA, BNP Paribas and Vickers DBS.
"Research dedicated to introducing small companies won't disappear," another portfolio trader says, "but it's going to diminish."
This is the downside -- the pity, even -- of the process we're witnessing in the Hong Kong market. Small companies have been a vital source of growth not just in the real economy but in the share market as well. In 1993 the market listed 300 stocks; now it lists 880, and almost all the growth -- apart from "red chips" over from the mainland -- has come from SMEs.
Yes, there's a small-cap index and a mid-cap index, but few traders bother with either; they've never found their places.
There's also a NADAQ equivalent, the GEM, or Growth Enterprise Market, but I have trouble seeing in dark basements: It's off by roughly half in the year since its inception.
Quite apart from the share markets, Hong Kong has a habit of paying only lip service to the SMEs that do so much to drive it. It should do more, and guiding change in the Hong Kong market is a clear instance where it could.
Hong Kong has bought its small brokers a year. Why not encourage them to strengthen during this interim so that the best of them can remain in the broking scene even as the big boys from across the water turn Hong Kong into a global market? Why can't they become the market's eyes and ears in the SME segment of the economy? Small and big are not mutually exclusive.
RSS