Low Volatility Blamed for Income Crashing 40% YoY for KVB Kunlun in H1 2014

The Hong Kong listed broker explained that the slowdown of market momentum caused a significant reduction in client deposits, from

KVB Kunlun logoFollowing up on the disastrous H1 2014 metrics announced by the group earlier this month, Hong Kong-based KVB Kunlun has now released its full interim report for the first half of the year. KVB explained that the slowdown of market momentum and reduced FX volatility caused a significant reduction in client deposits, from around a net of USD15 million in 2013 to just above USD8 million in 2014.

The report shows that the group’s total income decreased by approximately 40.3% to just about HK$57 million for the six months period ending June 30, 2014, from approximately HK$95.6 million for the six months period ending June 30, 2013. KVB’s leveraged foreign exchange (FX) and other trading income decreased by approximately 39.2% to about HK$42.7 million during H1 2014, from approximately HK$70.3 million in H1 2013. The firm claims this is mainly due to the lower market volatility during H1 2014 compared with H1 2013.

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The highlight in the first six months of 2014 for the group was that it had moved forward to enhance the trading experience of its clients, KVB claimed. The spread of most non-JPY cross currency pairs has been narrowed. The Group also launched a “CHINA300” index contract for difference (“CFD”), which is aimed to attract clients  interested in investing in the Chinese equity market. The Group further added a copper CFD, as KVB says it continues to be in line with the current market trend, where investors invest in commodities as a way to safeguard the value of their wealth.

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KVB Kunlun Review of the Markets in H1 2014:

During the six month period, there has been a significant slowdown in market momentum, with volatility reduced in the foreign exchange (“FX”) and commodity market. The gold price traded within a narrow range for the first six months in 2014, with the upper and lower boundary being at USD1,392 and USD1,203 per ounce. The movement in the gold price was much less than the price action observed during the same period in 2013, which presented a sharp drop from around USD1,696.9 an ounce to USD1,180.4 an ounce.

Likewise, the movement in major currency pairs was also affected by the reduced market volatility. The EUR/USD continued to be the most popular traded currency pair, with the AUD/USD, USD/JPY and GBP/USD closely behind. The EUR/USD topped at 1.3711 in February 2013 and then dropped to 1.2744 in April 2013, a more than 950 pip turnaround. During the same period in 2014, the EUR/USD only had about a 500 pip movement, more than a 42% volatility drop compared with the same period in 2013.

The price in the AUD/USD, USD/JPY and GBP/USD all traded with either a sharp uptrend or downtrend (more than 1000 pip movement) during the first six months in 2013. However, this kind of market momentum was not repeated during the same period in 2014. Due to the lack of market momentum and volatility in the first six months in 2014, the Group has seen a narrowed profit margin earned from the trading volume of its clients.

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