Starting Sept. 23, Hong Kong’s stock market will enter a new era, staying open even during severe weather events like typhoons. This move, mirroring international practices, marks the end of a unique rule that has closed the market for typhoon days, similar to snow days in Western countries. Until now, Hong Kong was the only major exchange globally that closed for bad weather. This quirk often irked investors, who joked about the exchange as a place for “open-air trading.” The change is driven by the increasing prevalence of electronic trading, rendering physical closures less necessary.
The new rule, announced by Hong Kong’s Chief Executive John Lee, aims to bolster the exchange’s competitiveness and strengthen its role as a bridge between international and Chinese markets. While the move is welcomed by major brokerages, experts believe its impact on trading volumes will be relatively limited.
Curtis Yeung, a strategist at UOB Kay Hian (Hong Kong), points out that the market has only been closed 12 times in the past seven years, with each closure lasting less than two days. He argues that the new rule will primarily improve access to Hong Kong stocks for global investors, who previously might have missed arbitrage opportunities during typhoon closures.
Kenny Wen, head of investment strategy at KGI Asia, agrees that the impact on trading volumes will be minimal. He suggests that investor confidence, rather than weather closures, is the real culprit behind the lack of activity in Hong Kong’s market. He attributes this to China’s sluggish post-pandemic recovery and the decline of tech stocks due to regulatory tightening. Wen also emphasizes the need for more listings, particularly in the AI sector, to attract investors who are currently choosing US and Taiwan markets.
To address these broader concerns, the Hong Kong government has established a task force to improve stock market liquidity. The task force has proposed various measures, including lowering the minimum amount for each trade, which could draw in more retail investors. This change would allow investors to buy smaller quantities of stocks, eliminating the current requirement of purchasing a full lot, which can be expensive, especially for high-priced stocks.
Experts like UOB’s Yeung believe that lowering transaction costs, such as the stamp duty and dividend tax on Stock Connect trades, will be more effective in boosting investor interest. They argue that these measures will attract mainland investors who currently prefer trading in Shanghai and Shenzhen due to the tax benefits in Hong Kong.
While the new typhoon rule marks a significant step towards aligning with global standards, the real challenge for Hong Kong’s stock market lies in addressing the deeper issues affecting its competitiveness and attractiveness to investors. This includes fostering a more conducive regulatory environment, enhancing market liquidity, and attracting more exciting listings across various sectors, especially in the booming AI space. Only then can Hong Kong truly reclaim its position as a leading financial center in the region and globally.
