WSJ/ Money & Investing: DBS Group, TD Waterhouse Form Online Trading Venture
January 10, 2002
By KAREN RICHARDSON
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Singapore's DBS Group Holdings Ltd. and Canada-based online financial services company TD Waterhouse Group Inc. are betting big on Hong Kong investors, who until now haven't been the most predictable bunch.
The companies' new 50-50 joint venture, DBS TD Waterhouse, is aimed at Asia's so-called "self-directed investors," or those who wish to invest for themselves in products including securities, currencies and mutual funds, without any investment advice.
The problem is, in Hong Kong such investors have shown themselves to be few and far between.
Just since December, Hong Kong's leading online securities brokers with both global and blue-chip local brand names either shut down their Hong Kong-dollar stock-brokerage businesses or slashed staff, or both. In an environment of financial services deregulation, economic sluggishness and thin market liquidity, the main culprit here is still the stalwart relationship between retail investors and good old-fashioned stock brokers.
"The reality of Hong Kong is that the majority of trading, about 50%-60%, is still done over the phone with brokers," says Ian Struthers, chief executive officer of DBS TD Waterhouse, which started its Hong Kong operations Monday. "Therefore, the telephone forms a key channel in our strategy," he adds.
Low Internet Usage
The relative dearth of Internet use in Hong Kong is certainly true with stock trading. In a survey by the Hong Kong Securities and Futures Commission in October, just 10% of 1,000 respondents said they traded stocks on line. Compare that with Korea, where 40% of trades are online. Not surprisingly, with roughly 70 online brokers operating in Hong Kong, according to technology research company IDC, and the abolition of minimum brokerage commission fees this coming April, there has been some serious consolidation.
U.S. online trading giant Charles Schwab Corp. is stopping trade in Hong Kong shares this month as part of an international strategy to "focus on the most promising areas, which are U.S. stocks," says Gary Leung, Charles Schwab's regional marketing manager. Also, 2cube Securities, a joint venture between J.P. Morgan Chase & Co. and Hong Kong telecommunications company Pacific Century CyberWorks Ltd., said last month it was laying off its 29-member Hong Kong staff and selling its 4,600 active customer ac-counts to U.S.-based E*Trade Group Inc. for an undisclosed amount.
Boom Securities, Hong Kong's first online broker, said last week it had cut a substantial number of its staff to reduce costs as the economy slumps.
Online mutual fund transactions haven't seemed to do much better.
According to the Sally Wong, spokeswoman of the Hong Kong Investment Funds Association, buying and selling of funds over the Internet "hasn't changed much" from the first quarter of 2001. That is when an association survey found only 12% of the city's 33 fund companies with Web sites had conducted online sales, which amounted to less than 5% of their total sales.
Industry Resistance
And of course there is also industry resistance to even the idea of self-directed, or nonadvisory online investing. "On its own, Internet investing without advice is not the way to go forward," says Malik Sarwar, regional head of investments at Citibank, one of Asia's biggest distributors of mutual funds. The boom in online trading in funds and securities in the U.S. over the past two years was in large part a precursor to the bust of the stock market bubble, he says. "At times like these when clients need to know what to do, advisory can help because it's forward-looking."
Despite the doom and gloom, Hong Kong's newest online trading entrants are upbeat, convinced they each have the winning strategy their failed counterparts didn't.
"There's no silver bullet in this business," says Mr. Struthers, adding that DBS TD Waterhouse's strengths are in breadth of customer reach, product and service. The company will use the Internet, telephone and customer kiosks to serve clients, who will also be able to access their accounts at DBs' more than 100 city branches. It will also introduce interactive-television and mobile-phone technology transaction options.
Greg Seow, executive chairman of DBS Vickers Securities, the bank group's securities and research arm, says the online platform isn't to encourage more trading of mutual funds. Rather, it is to provide another investment channel for self-directed investors in DBs' 5.5 million-strong regional customer base, and among its one million Hong Kong clients.
Commitment to Asia
"We're offering the online platform to our clients, along with our private banking, wealth management and regular online banking services. It's a part of our whole business and our commitment to Asia," he says.
As for the rest of the field, Charles Schwab continues to sell offshore mutual funds registered in Hong Kong, since all the infrastructure and payment systems are part of the company's existing U.S.-dollar transactions infrastructure, which doesn't require new investment as did its Hong Kong-dollar stock-trading business.
John Lord, head of E*Trade's Asian-Pacific operations, is so confident in the business that he is planning to establish not only a mutual funds supermarket on E*Trade's platform within the next 12 months, but is also considering including a universe of hedge funds or funds of hedge funds in the offering, pending regulatory approval.
"All the negative attention on online trading in Hong Kong reminds me of the industry in the U.S. back in 1995, when all the skeptics held the day," says Mr. Lord, who added that Hong Kong didn't have any online trading until October 2000, when the stock exchange set up its first automated trades processing platform. "To me, the growth in Hong Kong has been phenomenal."
-- Dow Jones Newswires contributed to this article.
Write to Karen Richardson at karen.richardson@awsj.com1
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