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Where Are the Investors? Turnover in Asia Plunges

Trading, measured by the turnover in Hong Kong and Singapore equities, fell in the first four months of the year on concerns over Europe’s debt crisis and as investors seek alternative investments to stocks after recent corporate scandals and the 2008 global financial crisis.

Hong Kong Stock Exchange
Peter Parks | AFP | Getty Images
Hong Kong Stock Exchange

In Hong Kong, where daily stock turnover plunged by 21 percent in the first four months of the year, it’s the scandal-driven small-cap and mid-cap stocks that are suffering the brunt of the declines, say analysts.

On the other hand, the Singapore stock exchange is facing the opposite problem. Its blue-chip stocks are not seeing much activity, traders say, and much of the action has gone to penny stocks.

Average daily turnover in January to April on the Hong Kong stock exchange, Asia’s third largest, fell to HK$60.253 billion ($7.8 billion) from HK$76.742 billion a year ago, according to latest data from Hong Kong Exchanges and Clearing. An average 153.07 billion shares changed hands daily, 7 percent less than in the same period last year.

“Volumes have generally been poor this year because of what’s happening in Europe, but the blue chips are holding up relatively well,” Ivan Li, deputy head of Hong Kong research at Kim Eng Securities, told CNBC. “It’s the small- and mid-cap stocks that have been hit by accounting scandals recently that people are staying away from.”

Among the most traded stocks in Hong Kong in the first few months of the year are blue chips China Mobile, Industrial and Commercial Bank of China, China Construction Bank,and HSBC Holdings, while small-cap stocks are suffering from the overhang of recent scandals.

In March, Deloitte resigned as the auditor of Daqing Dairy and childrenswear manufacturer Boshiwa International — both firms are now being investigated for possible financial irregularities. Several other companies, including Ausnutria Dairy and Ports Design , have had their shares suspended after they missed the deadline for filing their annual reports.

Arjan van Veen, research analyst at Credit Suisse in Hong Kong, who covers the shares of Hong Kong Exchanges and Clearingand Singapore Exchange (SGX), said concerns over Europe have kept retail and institutional investors away.

“Velocity, that is volume as a percentage of market capitalization, tends to be subdued when the market lacks direction, which looks like it is happening now,” van Veen said. “So unless we get more clarity on global economic direction, it is difficult to see volumes improving. Unfortunately, economic data points weakened, and coupled with renewed fears about Europe, the volumes fell away as quickly as they re-appeared in February and March.”

Singapore’s Blue Chips

In Singapore, turnover on the 30 component companies in the benchmark Straits Times Index fell 13 percent in the first four months of the year to S$219 billion ($174.2 billion) while the turnover for the entire market also fell 13 percent to $341.6 billion. But volumes rose 53 percent during the same period to 179 billion shares.

The Singapore stock exchange is Asia's eighth-largest and Southeast Asia's biggest by market capitalization .

A broker, who requested anonymity because he wasn’t authorized to speak, said the increase in volumes, especially in April, could be explained by short-term and day trading in penny stocks. Since these stocks are not in the Straits Times Index, a significant increase in trading volumes has no bearing on the Index, which has been drifting in a narrow range. The index started April at 3,010.46 and closed the month 1 percent lower at 2,978.57.

“This explains why the index has been moving sideways,” the trader said. “If there’s such a huge spike in volumes and in the main component stocks, the index must either move up or down. This means that much of the activity, especially in April, are in penny stocks.”

Justin Harper, head of media and research at IG Markets, a brokerage firm, believes that much of the activity in Singapore has indeed shifted away from blue chips because corporate earnings in the first quarter have been disappointing.

“We have seen big drops in profits for Genting, Noble, Wilmar, and Singapore Airlines to name a few big names,” Harper said. “So traders have become disillusioned with blue chips and are turning to racier penny stocks instead. People are looking for bargains and these are more likely to be found in the lower tiers of the SGX.”

Like van Veen in Hong Kong, Jake Li, associate vice president of dealing at CIMB Securities in Singapore, has seen enthusiasm for equities decline.

“After the crisis, generally, clients with substantial investable funds are less reluctant to invest in complex financial products and, their enthusiasm in the equities market is declining too,” he said. “Primarily their funds have been channeled into property investment over the last two to three years.”

The only driver of equities will be an improvement in the global economic situation, Li said.

—By CNBC’s Jean Chua.

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