We’re excited to introduce the Traders Without Borders series, consisting of bi-monthly analyses of retail investing markets across the world. Drawing from qualitative observations and quantitative data from private and government surveys, we focus on the ways in which international markets differ from that of the United States, and the distinct opportunities they carry for new entrants. First up: Hong Kong.
Unlike most western countries whose exchanges are heavily institutional, stock exchanges in Hong Kong and China are dominated by retail trades, which make up over 80% of their order flow. Most retail investors trade through banks rather than brokerages, and non-equity securities, such as bonds and futures, are not nearly as popular as they are in the US, though ETFs are gaining popularity among more serious traders. Overall, we saw that, when compared to the US market, the retail investing market in Hong Kong benefits from higher participation, a larger proportion of active traders, stronger smartphone penetration, and a cultural appreciation for trading as a form of entertainment.
Anyone can trade
In Hong Kong, people experience fewer barriers to entry when it comes to self-directed stock investing. Many banks encourage their customers to open a trading account alongside their typical checking or savings account, even if they do not explicitly ask for it. As a result, retail participation in capital markets is much higher than many western countries, where banking and investing have historically been delegated to separate institutions.
While only 2.4% of the US population has placed an online trade in the past 12 months, an impressive 21% of the Hong Kong population has done so. While the US still has 4 times as many active traders as Hong Kong, its general population is 50 times larger.
Hong Kong investors trade much more frequently than their counterparts in the US. Hong Kong’s retail investor pool contained very few inactive traders, with just 20% of investors abstaining from trading in the past 12 months, compared to around 40% in the US. (HKEx) In a survey by State Street, 73% of investors in Hong Kong trade at least once per month, compared to only 53% in the United States. As a result of more active traders, total average annual trades are higher in Hong Kong at 41 vs 17 in the US.
Smartphone penetration is high in Hong Kong, where the two most popular phone models are the iPhone 6 and iPhone 6 Plus. Highly accustomed to financial services and transactions on mobile devices, Hong Kong users have overwhelmingly adopted mobile trading. A survey from Investment Trends found that 80% of online investors use mobile devices for trading purposes. In the US, this number was a bit lower, around 60%, though an additional 12% of US respondents have plans to begin trading from their mobile device in the next year.
More trades, more fun
Though difficult to quantify, cultural attitudes towards trading have a large impact on financial market structures in both the US and Hong Kong. While most US traders see the stock market as a way to achieve their financial goals, investors in Hong Kong are more interested in stock trading as a form of entertainment.
An interesting result is that high net worth traders in Hong Kong trade more often than their less wealthy counterparts, while the opposite is true in the United States.
For investors who believe that stocks are a form of gambling, then a larger portfolio means more to play with. Conversely, for investors who see the stock market as a vehicle to retirement, a larger portfolio means more is at risk for placing a bad trade.
While there is a need for more research on the reasons behind this culturally different approach to investing, it is clear that Hong Kong’s Stock market holds opportunity for new entrants who focus on the high-net worth active trader demographic through mobile-first solutions.
HKEx Retail Investor Survey, March 2015.
A Snapshot of Investor Households in America, FINRA, 2015.
The Global Online Broking Report, Investment Trends, 2014.
The Self-Directed Investment Market, Celent, July 2010.