Asia traders shatter tradition to get social

 

These days we share most things online. Our photos, our social lives, our career histories

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At least, this is the hope of one newly launched Hong Kong online trading portal – 8 Securities – which is aiming to combine social media and stock investment to target Asia’s growing number of investors.

“We’ve built a platform that takes trading and social communication and merges it together,” says Mikaal Abdulla, the firm’s chief executive.

“It’s our own social network but you can also integrate it with your own external social network and publish your trades on Twitter, Facebook or LinkedIn,” he adds.

Social media is increasingly influencing the world of finance and investing. Some hedge funds use Twitter to capture investor sentiment on a given stock and some central banks use internet data to help them gauge economic conditions.

8 Securities’ approach to social media is different. It will allow users to see each other’s trades in real time, exchange ideas on instant messaging and follow or “friend” other traders in the community.

No relationship status here – the 8 Securities social network details trades and over financial activity

For example, says Mr Adbulla, if you bought Apple at $5 and sold it at $500, people will be able to see whether that’s true because your trades are posted automatically, making it more transparent than other online message boards and trading forums.

Some US-based online brokerages, such as Zecco, are treading a similar path, but Mr Abdulla says 8 Securities is unique in Asia.

Gateway to China

Eschewing Wall Street or The City, Mr Abdulla, a veteran of US online broker E*Trade, says Hong Kong was the natural place to launch the business.

The former British territory is home to the world’s seventh largest stock market and is also the gateway to China’s fast-developing financial markets.

Unlike markets in Europe and the US, where trading tends to be dominated by large financial institutions such as pension funds, Hong Kong has a thriving community of individual investors that frequently trade online.

Newspapers are full of trading tips and the nightly news always begins with the Hang Seng’s daily performance – the city’s equivalent of the FTSE 100.

Mikaal Abdulla says that Hong Kong was the natural place to launch an online trading portal

“I think for a city as small as it is, the market is very, very large,” says Mr Abdulla. “We looked at the competition, and unlike Europe and the US, it is quite traditional.”

According to the city’s stock exchange, Hong Kong has 1.8 million regular stock traders and 69% of these trade online.

But there are only a handful of pure, online trading portals and most internet trade takes place via bank websites, which Mr Abdulla says are expensive. Big-name US online brokers like Charles Schwab and E*Trade operate in the city but they only offer US stocks, he adds.

8 Securities also faces competition from Hong Kong’s old-school brokerage houses, where elderly clients congregate to drink tea and watch stock prices flicker on screens, but these are on the wane as technology savvy youngsters find stock tips elsewhere.

“It’s a tougher environment for brokers,” says Francis Lun, managing director of Lyncean Holdings. “We build up personal relationships but the new generation likes to trade online.”

Mr Abdulla says he hopes his social trading platform will create a buzz at the brokerage branch online.

High-risk

8 Securities is not the only online trading portal targeting Asia’s more adventurous investors. It’s a trend that’s likely to continue as austerity programmes bite in Europe and the US economy experiences a sluggish recovery.

Scoach, a German-Swiss electronic trading platform that specialises in derivative products, will launch in Hong Kong in July. It aims to take advantage of the local appetite for high-risk products such as stock warrants.

“The investment mentality in Asia seems to be more risk-tolerant than in Europe,” says Christian Reuss, Scoach’s chief executive. “Investors are willing to take greater risks for greater potential returns.”

Hong Kong’s appeal for these operators also lies in its status as a testbed for China’s potentially massive arena of stock market investors.

Asian investors take more risks than their European counterparts, says Scoach boss Christian Reuss

According to data compiled by 8 Securities, there are more than 30 million online stock trading accounts in Hong Kong and China, compared to around 20 million in the US and less than 10 million in Europe.

However, the controls Beijing places on the flow of money in and out of the country makes it very difficult for ordinary Chinese to buy and sell overseas stocks.

But for the upwardly mobile, one way around this has been to open a Hong Kong bank account, from where they can trade stocks worldwide. However, there are restrictions on how much money can be transferred from China into the account and vice versa.

Mr Abdulla estimates that one third of 8 Securities account holders are Chinese and its site can be integrated with Sina Weibo – a social network that is widely used in China, where Facebook and Twitter are blocked.

In particular, he says, Chinese investors like the liquidity and transparency of US markets and are interested in blue-chip US tech stocks like Apple, Microsoft and Google. He expects Facebook’s upcoming IPO to be particularly popular.

“Hong Kong is the natural point for them to trade foreign markets,” he says. “It’s really their only option.”