David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Vale's decision to call an end to its experiment as a Hong Kong-traded stock shows more than just the fact that secondary listings rarely work.

It demonstrates that Hong Kong Exchanges & Clearing, the city's stock-exchange operator, is better off sticking with pure China plays than foreign companies that rely on China for growth.

Vale, still the largest iron-ore producer in the world despite recent travails, went public in Hong Kong in the form of depositary receipts based on existing shares in 2010. China's hunger for commodities was at a high back then, but local investors never really got an appetite for Vale's stock.

Pump Up the Volume
Daily trading volume in major Vale equity listings. Having trouble spotting the Hong Kong depositaries? Take a close look at the colour of the baseline on the y-axis
Source: Bloomberg

Unless you squint, you might not even notice the main Hong Kong listing in that chart. Just 1.9 million of the Hong Kong receipts based on Vale's Brazilian common stock changed hands over the past year, versus 7.38 billion of the equivalent U.S. ADRs and 1.87 billion of the underlying Brazilian security. (Vale's preferred shares are more liquid than the common stock, with volumes of 6.8 billion over the past 12 months in Brazil.)

Have a look at the value of shares traded and you get a real sense of how little interest Hong Kong investors have. The peak trading turnover for Vale's local listings over the past year was April 29, when HK$5.3 million ($682,000) of securities changed hands. There have been only two days since the most popular U.S. ADRs first traded in 2002 when they saw so little activity, according to data compiled by Bloomberg. Over the past year, they've averaged $132 million a day.

Lonely Financial Zone
The daily turnover of Vale's Hong Kong depositary receipts is derisory
Source: Bloomberg

In part, Vale's lackluster performance in Hong Kong reflects the reality that institutional investors aren't big fans of secondary listings -- unless they're in the form of U.S. ADRs or London GDRs. 

But more broadly, it shows that Hong Kong Exchanges & Clearing hasn't been a success as a China gateway play. Compare trading turnover in Russian aluminum producer Rusal to state-backed Chinese rival Chinalco:

Siberian Wilderness
Daily trading turnover of Hong Kong-listed shares in aluminum companies
Source: Bloomberg

Or look at Italian luxury house Prada versus Golden Eagle Retail and Intime, two high-end Chinese department store chains with Hong Kong listings:

A Bit Too Exclusive
Prada's daily trading turnover in Hong Kong isn't much better than that of high-end Chinese department stores
Source: Bloomberg

Ultimately, Hong Kong is little different to any other major investment destination. Institutional investors know local stocks best, and prefer to own shares in companies whose major announcements are made in their own time zone, rather than ones who may issue a profit warning in the middle of the night. That makes the territory a great place to buy mainland stocks such as Tencent or banking behemoth ICBC. Brazilian iron ore and Italian handbags, not so much.

There's a separate argument sometimes made for Hong Kong listings that's more marketing than markets. For the likes of Prada, L'Occitane and Samsonite, a Hong Kong listing might help build brand awareness in a city that's still a major destination for Chinese travelers.

Still, if you want to market your product to Chinese consumers, the better strategy might be to actually market your product to Chinese consumers. That certainly seems a more sensible way to go about things than spending millions of Hong Kong dollars on listing fees for a thinly traded stock on the wrong side of the wall around China's closed capital markets.

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

To contact the authors of this story:
David Fickling in Sydney at
Nisha Gopalan in Hong Kong at

To contact the editor responsible for this story:
Katrina Nicholas at