Hong Kong’s finance industry is thriving from the great divorce between the U.S. and China. Billion-dollar initial public offerings are on the horizon again, as New York-listed mainland companies seek a second home. The city’s blue-chip index has even revised its weighting rules so tech stocks can feature more prominently. 

But is this enough to rouse a sleepy stock market? While Hong Kong is on par with Shanghai in terms of total market capitalization, turnover pales in comparison, and it’s practically a stagnant pool compared with the very liquid Shenzhen bourse. While mega IPOs are exciting, they are one-time events. Once bankers earn their fees and wave goodbye, trading could languish again.

South Korea may offer some insights. One year ago, Seoul was still in a deep bear market, plagued by steep conglomerate discounts and historically low turnover. Now, it’s teeming with life. Since global markets started turning around in late March, the benchmark Kospi index has soared more than 40%, making it one of the world’s best performers.

All of a sudden, Koreans, who dabbled in cryptocurrencies and all sorts of structured products, are frantically buying cash equities. Retail investors have single-handedly supported the main stock index as foreigners and domestic institutional investors sold.

CLSA Ltd. recently conducted a fascinating study explaining what’s become one of the Kospi’s largest ownership changes in history. Survey data show a few usual suspects: historically low deposit rates, cheap valuations, and blow-ups in popular alternative investments, such as mezzanine convertible bonds and equity-linked securities. A liquidity crisis and global market meltdown have tamed Koreans’ taste for exotic products.

But the most interesting finding is that investors are swapping their real estate holdings for stocks. This comes as President Moon Jae-in’s administration has made it harder to invest in residential property, with a recent ban on mortgage lending for anything valued over 1.5 billion won ($1.2 million). In the past few years, a series of tightening measures has worked: A flattening of home prices, along with dwindling sales volumes, dented investor sentiment.

Apartments in Seoul were once considered one of Korea’s best performing long-term assets. They registered a capital gain of 80.9% over the past 15 years, with flats in the affluent Gangnam district returning more than 200%, data provided by CLSA show. Yet property restrictions look set to remain as long as Moon’s around — and he’s not required to leave office until 2022. So people with money to invest have to look elsewhere. Samsung Electronics Co., which gained 443% over the same period, is a good alternative. Retail investors have poured $7.2 billion into the company’s shares this year. 

Many of the catalysts that drove Koreans to stocks are present in Hong Kong, too. Interest rates are even lower and high-profile stocks are landing, including NetEase Inc., while Alibaba Group Holding Ltd. completed its secondary listing last year. Meanwhile, local investors can no longer count on HSBC Holdings Plc for reliable dividend payouts, forcing them to look at tech companies instead. It’s no coincidence that the retail portion of NetEase’s Hong Kong listing was met with brisk demand on the first day, enabling the company to increase its allotment to local investors. 

The missing piece, however, is real estate. As soon as Hong Kong loosened its social distancing rules in May, secondary home-sales prices ticked up, along with transaction volume. The Land Registry recorded 6,885 property deals in May, a 12-month high. The faith that this sector can outperform stocks hasn’t broken yet.  

For an equity market to shine, local retail participation is essential. Overseas institutional investors, the biggest contributors to Hong Kong’s turnover, come and go. Those from the mainland, now active players through the stock connect, are equally fickle, given they’re so used to liquidity-driven markets back home. So unless Hong Kong moms and pops can learn from the Koreans — trading away their flats in Gangnam for a slice of Samsung — the Hang Seng will remain asleep.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron’s, following a career as an investment banker, and is a CFA charterholder.

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