The Ultimate Guide to
The Hong Kong Financial Market
The Hong Kong financial markets have a rather lengthy history, with the first stock market in Hong Kong dating back to the late 1800s. The Stock Exchange of Hong Kong Limited (SEHK) is presently the fourth largest in Asia and is ranked fifth in the world by market capitalisation with $3.936 trillion listed. The SEHK merged in 2000 under the HKEX Group holding company, along with the Hong Kong Futures Exchange Limited (HKFE) and the Hong Kong Securities Clearing Company Limited (HKSCC).
The SEHK, Shenzhen and Shanghai stock exchanges presently account for most of China’s securities turnover and have a total market cap of $10.466 trillion. Like many of the world’s stock exchanges, the SEHK has ended its open outcry trading method in favour of electronic trading, and it closed down its physical trading floor in 2017.
The SEHK’s primary and oldest stock market index is the Hang Seng index that consists of 50 major listed companies. The Hang Seng Composite Index was launched in 2001 and provides a broader market benchmark covering roughly the top 95% of the exchange’s total market capitalisation.
The currency used in Hong Kong is known as the Hong Kong dollar (HKD) and according to the Bank for International Settlements (BIS) it now ranks 13th among the world’s most actively traded currencies by global turnover. The HKD also has a roughly 1.7% of market share in 2016.
The primary financial regulator in Hong Kong responsible for overseeing forex and contract for difference (CFD) trading is known as the Hong Kong Securities and Futures Commission (HKSFC). This regulatory body oversees all financial companies operating in the securities and futures market in Hong Kong. It aims to promote fairness and competitiveness within the industry without impacting market integrity.
Trading in Hong Kong
When it comes to stock trading, the SEHK has established itself as an attractive listing venue for Chinese companies. The SEHK originally launched the Automatic Order Matching and Execution System (AMS) before it was upgraded to AMS/3 in October of 2000. Equities now trade on the exchange via the AMS/3 electronic trading system, in addition to warrants, commodities, fixed income products and currency pairs.
Those looking to trade speculatively on the Hong Kong financial market have a number options available through online brokers that let clients operate using their trading platforms:
- Forex Trading: Exchanging one currency for another forms the basis of forex trading. Exchange rates fluctuate as one currency rises or falls relative to another in particular currency pair. The popularity of forex trading has expanded greatly once online trading became possible. The forex market is the most liquid and largest financial market globally and had a daily turnover of $5.1 trillion/day in April 2016, according to data compiled by the Bank for International Settlements (BIS).
- CFD Trading: Making transactions in derivative financial instruments known as contracts for difference (CFDs) allows traders to speculate on the future of their underlying assets. Such assets can consist of a currency pair, commodity, stock, stock index or other financial instruments.
- Demo accounts: Funded with virtual money, these accounts can be used to practice trading, test a strategy or check out a broker’s services and platform. Find out more on opening demo accounts here.
- Islamic accounts: These are suitable for traders who wish to trade in an account that conforms to Sharia law. Find out more on trading with an Islamic account.
Opportunities of Trading in Hong Kong
A number of Hong Kong’s strengths provide excellent opportunities for trading, investment and business in what is one of Asia’s key economic and financial centres. According to HKTDC Research, some of Hong Kong’s key advantages include the following:
- Hong Kong is among the world’s freest economies.
- Service sector activities account for over 90% of GDP.
- Hong Kong is the world’s seventh largest exporter of merchandise and 15th largest exporter of commercial services.
- It has the second largest forex market in Asia and the fourth largest globally in 2016.
- The largest RMB clearing centre in 2017, with about a 76% global market share.
- The third largest global financial centre behind London and New York.
- Hong Kong ranked fifth globally in container throughput.
- Hong Kong International Airport has been the world’s busiest airport for international cargo since 2011.
Furthermore, Hong Kong was very favourably ranked 4th in the world when it comes to the ease of doing business by the World Bank. The country also came in 5th for starting a business and 11th for protecting minority investors, but it dropped back to 32nd for procuring credit.
Challenges of Trading in Hong Kong
Since Hong Kong makes up a significant part of China’s economy, threats of a growing trade war and imposition of trade tariffs between China and the United States have weakened the HKD somewhat and have increased uncertainty in doing business in the city.
Still, any HKD-negative effect was largely reversed by the Hong Kong Monetary Authority raising its benchmark base lending rate in line with the Federal Reserve’s recent rate hikes. The Hong Kong Dollar can also be subjected to significant market shocks when significant news regarding this trade issue gets released unexpectedly.
Summary
Traders will generally find Hong Kong markets well-regulated by the HKSFC, as well as accessible via modern dealing and financial technology. When a trader in Hong Kong is looking for an online broker to trade through, they will want to ensure that the firm has a suitable asset classes range, an efficient trading platform, oversight by a good financial regulator, and are sufficiently trustworthy to warrant placing a margin deposit with them.
