E-finance: Asians embrace finance online

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Who could have dreamt that Korean online trading, almost non-existent two years ago, could be almost as large as that of the US?" So asked Andrew Sheng, chairman of Hong Kong's Securities&Futures Commission (SFC) in an address to the local Securities Institute delivered earlier this spring. Although online trading is gathering momentum across Asia, the speed with which it has been embraced by Korean investors has been staggering. As a report published on Korea's "internet laboratory" by Lehman Brothers early in March commented: "Over just a one-year period, online trading has grown from 4% of market turnover to 45%. Twenty-nine out of 31 domestic brokers now offer online broking services, and two million Korean investors have gone online."
The potential of online broking in the region has not gone unnoticed by US e-brokers. Charles Schwab opened its Hong Kong operation in April 1997, and last year extended its regional network to include Japan and Australia. Christina Hui, Schwab's Hong Kong-based regional general manager for Asia, says that over 90% of the company's clients now deal online, compared with 60% when operations began three years ago. She adds that the growth posted in 1999 is ample evidence of the enthusiasm with which investors in Hong Kong have responded to online brokerage opportunities. "We saw a three- to four-fold increase in online trading among our clients in 1999," she says, "and the average number of trades per account is about four times higher than among our clients in the US."
To date, Schwab has only been able to offer its Asian clients - which have an average account size of $200,000 - access to the US stock market. But the growth posted at Schwab in 1999 seems likely to accelerate this year, given that the online broker will start offering local investors the opportunity to trade Hong Kong stocks following the launch this summer of the local exchange's new AMS3 electronic trading system. Hui says that investors in Hong Kong remained stoical in the wake of Nasdaq's mini meltdown in April and May. "Trading volumes among our clients were pretty stable," she says, "and a number even saw the correction as a buying opportunity. We did not see any panic selling in April."Hui adds that among Schwab's Hong Kong-based clients the reaction to the upheavals on Nasdaq were broadly similar to those of retail investors in the US who were polled by Schwab twice in April - first on April 5 and subsequently on April 17. In the first of the two surveys, 94% of the 400-odd clients polled indicated that they remained "comfortable" with prospects for the equity market, and in the second this dipped only marginally to 92%.By April 17, according to Hui, only 12% of the survey's respondents indicated that they had been "shaken" by the volatility in the US equity market, while at the same date 65% reported that they had been net buyers of equities during the turmoil. And 95% of respondents continued to believe that the equity market remained the best place for long-term investment, and 98% had come to expect the occasional correction in the market.The survey of April 17 also found that 66% of respondents expected the Dow to rise from its current levels within the next six months and 62% foresaw a rise in the Nasdaq index over the same period. Asked to explain why they thought the US market had plunged so precipitously, 78% attributed the correction to overvaluations in the technology sector, 71% thought that the market in general was overvalued and 59% attributed the fall to an emotional backlash.Schwab is soon to be joined in the Hong Kong market by DLJ Direct, which has recently announced the launch of a venture in cooperation with Hutchison Whampoa aimed at offering local investors online broking facilities. The significance of operations such as these, say local bankers, stretches well beyond their value as a barometer of increased acceptance of the internet as a commercial conduit by consumers in the Asian region. Much more important, they argue, is that the growth in online securities trading brings with it the potential to revolutionize the structure of regional equity markets. "I hate to use buzzwords," says Frank Sixt, group finance director at Hutchison Whampoa, "but offering an efficient discount brokerage service is all part of empowering the consumer, and the consumer for financial products is very important."Empowering the consumer in the regional securities market by reducing brokerage commissions (Schwab charges between 0.1% and 0.9% with a minimum of US$39 per trade), and by providing retail investors with updated research will, the logic goes, have a clearly beneficial knock-on impact on markets throughout the region. Easier access will bring more investors, as the Korean experience has already demonstrated; and with more investors will come enhanced liquidity, improved valuations and, in theory at least, a larger pipeline of IPOs as a result. Singapore, too, is clearly hoping that an increase in e-broking will help to bolster demand from retail investors. "In Singapore, online trading has yet to reach the levels in the US, mainly because commissions for online trades have yet to be liberalized," explained Daniel Tam, executive vice-president of the Singapore Exchange (SGX) at a recent conference. "While commission for all trades will be fully negotiable by January 2001, SGX is evaluating the feasibility of fully liberalizing commissions for online trades before January 2001. I am confident that with the freeing of commissions, online trading will attract both existing and new investors, and volumes are set to rise. I would be most surprised if online trading volumes do not exceed 40% after that."The Lehman Brothers report on on-line broking in Korea found that the winners emerging from the process were clearly investors not intermediaries, and that "when every industry participant offers online broking services, as in Korea, there is no cost arbitrage opportunity.

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