Trading floors go quiet across Asia as equity desks shrink

Even by the boom-bust standards of Asia’s equity business, it’s been a turbulent 12 months.
At this time last year, the industry was riding high as China’s stock market soared, volumes jumped to records and some of the biggest names in finance boosted hiring. Now, turnover is shrinking at the fastest pace since at least 2006 and banks are under growing pressure to either downsize their Asian equity desks, or exit parts of the business altogether.
Investors and issuers are retrenching after Chinese shares crashed, the Federal Reserve tightened monetary policy and divisive political debates from the US to Britain weighed on sentiment. Revenue from trading stocks in China and Hong Kong could fall 30% to 50% in the first half from a year earlier, according to senior executives at four firms who spoke on condition of anonymity. Equity derivatives sales in Asia are on track to drop at least 50%, while prime brokerage is down roughly 20%, two of the executives said.
“Because overall revenue is down, further cuts are likely across the industry,” said Taichi Takahashi, Asia-Pacific head of equities at UBS Group AG in Hong Kong. “Some second-tier players will throw in the towel because their market share is shrinking.”
Asian equities units could be facing their worst year since 2012, when the European credit crisis roiled markets, according to two of the executives interviewed for this story, who asked not to be identified because global banks don’t break out results for regional equities operations.
Revenue for the industry in Asia slumped 32% to $2.6bn in the first quarter from a year earlier, compared with a 20% drop worldwide, according to estimates from Coalition, a banking research firm. Regional equities headcount dropped by about 300, or 6%, Coalition figures show.
Turnover on Asia’s 10 biggest exchanges has declined 69% from last year’s peak in May, the deepest slump over any period of the same length since Bloomberg began tracking the data in 2006. Equity capital markets deals have also slowed, with Asia playing host to just $2bn initial public offerings this year.
Investment banks geared to Asian stocks, including UBS, Societe Generale and Credit Suisse Group, will probably underperform, JPMorgan Chase & Co analysts led by Kian Abouhossein wrote in a research note.
It’s hard to blame traders for pulling back. China’s economy shows few signs of recovering from the weakest annual expansion since 1990, while analysts predict the Fed will boost borrowing costs again this year after lifting rates in December. Britain’s June 23 referendum may lead to the country’s exit from the European Union, just months before a US presidential election that could put former reality-TV star Donald Trump in the White House.
“Right now, it’s very difficult to have any strong conviction on where the market is heading,” said Ali Naqvi, co-head of global markets for Asia-Pacific at Credit Suisse. “A lot of hedge funds are sitting on 20 to 40% cash,” he said, calling such reluctance to take risk “unheard of.”
Banks’ equities operations in Japan have fared better, in part because Prime Minister Shinzo Abe’s efforts to encourage banks to unwind cross-shareholdings have stimulated trading, two of the executives said. Turnover in the Topix index has dropped about 24% over the past year, versus 61% in Hong Kong and 82% in Shanghai, data compiled by Bloomberg show.
Industry executives were bullish on China in the first half of last year, too. As the nation’s stock market approached record highs, banks including HSBC Holdings, Morgan Stanley and Credit Suisse added staff to their research departments in anticipation of increased trading. Flows through the Shanghai-Hong Kong exchange link, which opened in November 2014, helped fuel the optimism.
But the boom didn’t last long. After peaking on June 12, 2015, the Shanghai Composite Index began a dizzying descent that erased as much as $5tn of equity value, roiled global markets and caused China’s government to respond with a much-criticised raft of measures to prop up the market.
Purchases of mainland shares through the exchange link peaked last July, with international investors using up less than half their quota as of last week.
China and Hong Kong together account for 30% to 50% of banks’ cash equities revenues in Asia, three executives said.