The Chinese territory’s stock exchange, which has one of the shortest trading days among the world’s major markets, plans to halve its two-hour lunch break over the next two years.
It also plans to start trading half an hour earlier in a bid to raise its competitiveness with its counterpart on the Chinese mainland, the Shanghai stock exchange, as well as regional rivals.
The plans announced this week will bring the Hong Kong exchange’s trading hours more in line with Shanghai’s so there’s less chance for investors to exploit the trading time differences between the two — differences that would increasingly favor Shanghai as its market gradually opens to more foreign participation.
Hong Kong, a former British colony promised Western-style civil liberties in its handover to China, has its own currency and markets as part of its special semiautonomous status.
Over the years, the Hong Kong bourse has become increasingly reliant on business from China, with more than two-thirds of trading turnover coming from its listings of mainland-based companies. Many Chinese stocks are traded in both Shanghai and Hong Kong and as the number rises, “investors in the Hong Kong market can only react to market news after their counterparts in the mainland market,” which may prevent stocks from being sold at fair prices, a consultation document on the proposed changes released on Tuesday said.
The Hong Kong exchange tried to introduce longer trading hours in 2003 but failed because of stiff opposition from brokers.
Not everyone is happy about the latest proposed changes either. Brokerage staff say that contrary to popular belief, they don’t use their two-hour break for boozy, leisurely lunches. Instead, the time is used to meet with executives from publicly traded companies or to attend presentations on initial public offerings.
“I normally need a two-hour lunch to do an adequate job,” said Francis Lun, general manager of Fulbright Securities Ltd. “I don’t go out and enjoy a very liquid lunch, I don’t get drunk. For me it’s a working lunch.”
When the midday break is shortened to just an hour, Lun said the trading day will be “longer, much more stressful, and certainly, traders will have more stomachaches.”
At the moment, trading on the Hong Kong stock exchange starts at 10 a.m. and stops at 12:30 p.m. for a two-hour break before closing for the day at 4 p.m., for a total of four hours. In Asia, only the Philippines has a shorter trading day — the Manila exchange is only open for about two and half hours.
Shanghai’s stock exchange is also open for a total of four hours. However, trading starts at 9:30 a.m. before pausing two hours later for a 90-minute lunch. The afternoon session runs from 1 p.m. to 3 p.m.
Hong Kong Exchanges and Clearing Ltd., which operates the market, said this week that its board of directors decided after consultations with industry members that it will extend trading hours in two phases. On March 7, the morning trading session will start half an hour earlier and the lunch break will end 30 minutes earlier.
A year later, in March 2012, the end of the lunch break will be moved up another 30 minutes, for a total of five and half hours of trading.
Among major Asian markets, “Hong Kong is now the last one to open, so it’s not easy for Hong Kong investors to respond to what happens overnight and in other major markets like Japan and Korea,” said Stephen Leung, director of institutional sales at UOB-Kay Hian Ltd.
Leung said a shorter lunch break will also benefit brokers because it means that if market-moving news occurs in China when trading has stopped in Hong Kong, brokers won’t have to wait so long before reacting to it.
David Webb, editor of Webb-site.com and a shareholder and corporate governance activist, said arbitrage between the Hong Kong and mainland China markets isn’t a major factor yet because not many investors have access to both.
“However, the trend is there,” he said.
“Synchronizing the lunch break will also make it easier for dual-listed companies to release information when both markets are closed for lunch,” he said.
Tokyo’s stock exchange said Wednesday it too plans to cut its lunch break by half an hour to 60 minutes and Singapore is also mulling longer trading hours as Asian exchanges compete with their regional and global rivals. In Britain, France and Germany, the major stock markets are open for at least eight and half hours, while the US market is open for six and half hours. None close for lunch.
