HONG KONG stock brokers’ year has gone from bad to worse after index provider MSCI Inc. decided not to add mainland shares to a benchmark indexed tracked by US$1.5 trillion in global assets, dashing the hopes of a sector struggling with tumbling business.

    Average trading volumes on the Hong Kong stock exchange in the first five months of 2016 are down 43 percent on a year ago, and the stock market is down 30 percent, its worst performance since the global financial crisis.

    Without any external shocks to account for the weakness, analysts fear a longer-term structural decline for the city’s finance sector, which acts as a conduit for investment into the mainland, including A shares.

    The hoped-for inclusion of those shares in MSCI’s Emerging Markets Index, which could draw up to US$400 billion into Chinese mainland markets, had been a glimmer of light for brokers in Hong Kong.

    Indeed, nearly US$8 billion had flown into various mainland access products in recent weeks ahead of the decision, according to UBS calculations, mostly through Hong Kong.

    “The MSCI decision is yet another blow to what has been a very challenging environment for banks and financial institutions in the sales and trading business,” said John Mullally, director of financial services at Robert Walters in Hong Kong.

    “Recruitment picks up when banks feel confident about their operating environment, and current market conditions are the worst I have seen in a while,” he said.

    On some days, trading across the entire Hong Kong stock market floor is lower than trading volumes for e-commerce company Alibaba Group on the New York Stock Exchange.

    Hong Kong’s prosperity is intrinsically linked to the mainland, its dominant trading partner, where growth has slowed to a 25-year low.

    Its own gross domestic product shrank for the first time in nearly two years in the first quarter of 2016, as the mainland’s slowdown hit Hong Kong’s property market and retail industry.

    Weakness in the finance sector, which accounts for 17 percent of Hong Kong’s gross domestic product, claimed a first major victim earlier this month, when family-run Hong Kong lender Bank of East Asia Ltd. closed its entire stock broking unit, laying off 180 people.

    In addition to falling volumes, brokers who have been slow to embrace new technology are feeling the pressure of a shift toward automated trading, which cuts into fees and bypasses traditional trading staff.

    (SD-Agencies)