Overseas Investor Participation in HKEx s Securities Market Reaches New Record High

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1 Overseas Investor Participation in HKEx s Securities Market Reaches New Record High By Research & Corporate Development Department The HKEx Cash Market Transaction Survey found that overseas investors surpassed local investors in trading on HKEx s securities market to reach a new record high. This further solidifies the international status of HKEx s market. HKEx has conducted the Cash Market Transaction Survey (CMTS) annually since 1991 to track trading composition by investor type in its securities market (or cash market, comprising the Stock Exchange s Main Board and Growth Enterprise Market, or GEM). The latest survey covered market turnover during the 12-month period from October 2009 to September Distribution of Securities Trading Value by Investor Type In 2009/10, local investors contributed 44 per cent of the total securities market turnover value, down from 50 per cent in 2008/09. Among local investors, retail investors and institutional investors contributed 21 per cent and 23 per cent of trading value respectively in 2009/10, compared to 25 per cent and 24 per cent respectively in 2008/09. The contribution of overseas investors climbed to 46 per cent in 2009/10 from 42 per cent in 2008/09 and for the first time surpassed the contribution from local investors. Overseas investor trading came predominantly from overseas institutional investors who continued to be the largest contributors among all four types of investor (ie local/overseas retail and institutional investors). Their contribution increased from 38 per cent in 2008/09 to 42 per cent in 2009/10. The contribution of Exchange Participants (EP) principal trading to total market turnover value increased from 8 per cent in 2008/09 to 10 per cent in 2009/10, a record high since the survey started in (See Figures 1 and 2.) 25 Exchange April 2011

2 Figure 1 Distribution of cash market trading value by investor type (Oct 2009 Sep 2010) 1. EP principal trading is trading on EP firms own accounts. 2. Numbers may not add up to 100 per cent due to rounding. Figure 2 Distribution of cash market trading value by investor type (local vs overseas) (2000/ /10) 26 Exchange April 2011

3 The contribution of all institutional investors (local and overseas) increased from 62 per cent in 2008/09 to 64 per cent in 2009/10 and remained at above 60 per cent for the fifth consecutive year. On the other hand, the contribution from local and overseas retail investors declined from 30 per cent in 2008/09 to a record low of 26 per cent. (See Figure 3.) Figure 3 Distribution of cash market trading value by investor type (retail vs institutional) (2000/ /10) Distribution of Overseas Investor Trading Value by Origin UK investors overtook US investors in 2009/10 and regained their status as the largest contributors to overseas investor trading. Their contribution increased to 28 per cent from 23 per cent in 2008/09. US investors contributed 24 per cent of overseas investor trading in 2009/10, down from 36 per cent in the previous year. They ranked behind UK investors for the first time since surpassing them in 2004/05. Continental European investors came third with a rebound of contribution to 16 per cent in 2009/10 from 10 per cent in 2008/09. Investors from Mainland China had a contribution of 11 per cent, compared to 12 per cent in the previous year, and were ranked fourth among overseas investors in 2009/10. Asian investors (excluding Hong Kong investors) contributed in aggregate 27 per cent of overseas investor trading in 2009/10, compared to 26 per cent in 2008/09. Among Asian investors, Singapore-based investors contribution of 9 per cent was the second largest behind Mainland China investors. (See Figures 4 and 5.) 27 Exchange April 2011

4 Figure 4 Distribution of overseas investor trading value in cash market by origin (Oct 2009 Sep 2010) # Reported origins in Rest of Asia were Brunei, Cambodia, India, Indonesia, Kazakhstan, Korea, Laos, Macau, Malaysia, Myanmar, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam. * Reported origins in Others included Anguilla, Argentina, Bahamas, Bahrain, Belize, Bermuda, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Cyprus, Dubai, Ecuador, Fiji, Gambia, Ghana, Guatemala, Isle of Man, Israel, Jamaica, Kuwait, Liberia, Marshall Islands, Mauritius, Mexico, New Zealand, Oman, Panama, Qatar, Republic of Seychelles, Saint Kitts and Nevis, Samoa, Saudi Arabia, South Africa, Turkey, United Arab Emirates and Venezuela. Figure 5 Distribution of overseas investor trading in cash market by origin (2000/ /10) % of overseas investor trading 1. Taiwan was included in Rest of Asia in surveys prior to 2001/02. Singapore was included in Rest of Asia in surveys prior to 2002/03. Australia was included in Others in surveys prior to 2007/ Numbers may not add up to 100 per cent due to rounding. 28 Exchange April 2011

5 Although the survey did not ask for a breakdown by retail/institutional investors for each overseas origin, a minimum proportion of retail/institutional investors trading from each origin could be deduced from EPs responses. Overseas investor trading from the US, the UK and Continental Europe came predominantly from institutional investors (around 96 per cent or more). The majority of overseas investor trading from Singapore (at least 85 per cent), Australia (at least 75 per cent) and Japan (at least 70 per cent) also came from institutional investors. However, at least half of the overseas investor trading from Mainland China came from retail investors. Changes in Trading Value by Investor Type From the percentage contributions obtained from the survey, the implied trading values by investor type during each study period were computed based on the actual trading values. The total market turnover increased by 9 per cent year-on-year in 2009/10. The value of overseas investor trading recorded an increase of 20 per cent, mainly reflecting the increase in the trading of overseas institutional investors (up 21 per cent). On the other hand, the trading of local investors dropped by 4 per cent; in particular, the trading of local retail investors dropped by 8 per cent. The value of EP principal trading grew by 27 per cent. (See Figure 6.) Among all overseas investors, US investors were the only group with a decrease in trading value in 2009/10 (down 19 per cent from 2008/09) while the trading of Continental European investors recorded the biggest growth of 85 per cent. (See Figure 7.) Figure 6 Implied value of cash market trading by investor type (2000/ /10) HK$ bil Year-on-year % change Type of trade 2000/ / / / / / / / / /10 EP principal trading Overseas investor trading Retail Institutional Local investor trading Retail Institutional Retail investor trading Institutional investor trading Total Exchange April 2011

6 Figure 7 Implied value of overseas investor trading in cash market by origin (2000/ /10) HK$ bil Year-on-year % change Overseas origin 2000/ / / / / / / / / /10 US Europe UK Europe (excluding UK) Asia Japan Mainland China Taiwan Singapore Rest of Asia Australia Others Total Taiwan was included in Rest of Asia in surveys prior to 2001/02. Singapore was included in Rest of Asia in surveys prior to 2002/03. Australia was included in Others in surveys prior to 2007/ Numbers may not add up to 100 per cent due to rounding. Retail Online Trading The proportion of retail online trading, ie trading originating from orders entered directly by retail investors and channelled to brokers via electronic media such as the Internet, continued to increase in 2009/10. Retail online trading 1 accounted for about 27 per cent of total retail investor trading (up from 21 per cent in 2008/09) and 7 per cent of total market turnover (compared to 6 per cent in 2008/09). (See Figure 8.) 1 Since Exchange Participants might not be able to identify retail online trading channelled via banks (which might be regarded as their institutional clients), the level of retail online trading might be subject to underestimation. 30 Exchange April 2011

7 Figure 8 Percentage share of online trading value in cash market (2000/ /10) The full survey report is available under Research Reports in the Statistics & Research section of the HKEx website. Cash market, securities market and stock market are interchangeable and refer to shares, bonds, funds, derivative warrants and other structured products traded on The Stock Exchange of Hong Kong Limited, a wholly-owned subsidiary of HKEx. The survey s target respondents were EPs. Their responses stemmed from their own understanding of their clients. HKEx had no direct access to EPs clients, nor could it verify their identities. One of the limitations of the survey is that EPs might not know the true origins of all their client orders. For instance, an EP might classify transactions for a local institution as such when in fact the orders originated overseas and were placed through that local institution, or vice versa. In some cases, EPs might not be able to identify the composition of orders channelled via banks (which might be regarded as their institutional clients). As a result, the findings may deviate somewhat from the true picture. 31 Exchange April 2011