Confessions of a Cat-holic (199)

Here was another thing I didn't like about Hong Kong's financial markets. It was that the general public had a very skewed perception about what finance actually meant and they liked to mistakenly equate stock picking to finance in general. The so called bankers or traders in Asia liked to create sensational headlines with propelling stories to drive market volatility in order to reap profits often times from short selling. And they thought that such under the table tactics would entail what a financial expert would do. Insider trading or wrongful market manipulation should be illegal in Hong Kong, and so was money laundering, frauds and other white collar felonies. On the other hand, New York Stock Exchange had a much more developed and extensive compliance framework so banks would not risk breaking the laws; you could call Hong Kong a jungle where profits and revenues topped all priorities. But hey, I was almost a journalist too, researching at HKU's journalism department on media hype. There was nothing new under the sun.

The fixed income market was way more structured and advance in New York. The fixed income trades in Hong Kong were still booked on paper tickets; you could still see those stock exchange traders running around in red vests, like what was portrayed in 大時代. New York had it all run on electronics long time ago. Such booking system was archaic in Asia. Asia was mainly trading on US treasuries, the plain vanilla products as they called; the demand for structured products in fixed income was minimal in Hong Kong at the time which might have explained why the subprime MBS crisis in 2008 did not really affect China and Hong Kong's financial market that much. I knew that an exposure in New York should be beneficial for my career, just a summer internship to see what it could offer would suffice. After all, I majored in financial engineering in the city of New York. I would not let my degree go into waste.

Finance was much broader than stocks alone. There were other securities equally sizable, such as commodities, fixed income, fixed income derivatives, convertibles, stocks, equity derivatives (put call option for example), funds, index-linked funds, distressed bonds, pre-IPO placements, municipal bonds, all of different maturities, volatility and functions. Some could be for hedging your risks, such as CDS, or warrants; some could be for stabilizing a class of assets and hedging against inflation, such as ILBs, or otherwise known as inflation linked bonds; some could be for currency hedging, which could be the case for many central banks for example; some had short maturities with lower coupon rates while some treasury bonds had higher coupon rates to compensate for its exposure and longer duration. Some credit bonds had lower ratings, therefore they had to issue bonds with higher yields to compensate for its default risks involved.

Often times in Asia, equity derivatives products were traded like gambling assets where you could make a millionaire overnight while the reverse could also hold. A lot of my so called friends (Serena Ho and her lawyer boyfriend from DBS) allegedly invested in their early twenties half a million into buying call put option and earned over tenfold overnight, and they called themselves "the rain maker" or "the fortune teller with the crystal ball who could correctly predict and manipulate the market", only to find out later that they could lose it all in a blink as well. There were many ways to get rich in the financial market without violating the law or costing an arm or a leg.

I was a fixed income sales, and I didn't have to offer tips on a specific stock; that could be something like asking a psychiatrist to run an operation on a patient's Achilles tendon. Also, I had seen how hysterical the market could get right before a crash, witnessing the handover, the 1987 market collapse, the SARS, subprime crisis. A banker, if hedging his risks right, should not have to live like 丁蟹 in 大時代. This guy was phenomenal, they even coined the term 丁蟹效應 whenever local markets plummeted.