Hong Kongs Financial Markets: Positioning for the 21st Century by - - PowerPoint PPT Presentation

1

Hong Kong’s Financial Markets: Positioning for the 21st Century

by

• Mr. Andrew Sheng

Chairman Securities and Futures Commission 18 September 1999

2

Asian crisis - growth slowed, but not as bad in USD terms

Real GDP Growth Rate (%)

IN LOCAL CURRENCY IN USD 1997 1998 1999* 1999 over 1997 Hong Kong 5.3

• 5.1
• 0.5
• 5.7

Singapore 8.0 1.5 1.0

• 10.9

Taiwan 6.8 4.8 4.9

• 3.2
• S. Korea

5.0

• 5.8

2.0

• 24.9

Thailand

• 1.3
• 9.4

0.0

• 27.0

Malaysia 7.7

• 6.7

0.7

• 31.7

Indonesia 4.7

• 14.5

0.0

• 71.1

Philippines 5.2

• 0.5

2.4

• 22.6

Remarks: * ADB forecast; exchange rates for 1999 are the averages of Jan-Jul 1999

3

Hong Kong’s GDP (in USD terms) remains at pre-crisis level (1996=100)

20 40 60 80 100 120

Hong Kong Singapore Taiwan South Korea Thailand Malaysia Indonesia Philippines

1996 1997 1998 1999f

Remarks: 1999 are ADB forecasts; exchange rates for 1999 are the averages of Jan-Jul 1999

4

Market Turnover Stabilizing and Rebounding (US$ billion)

40 80 120 160 200 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 20 40 60 80 100 Taiwan (LHS)

• S. Korea (RHS)

Hong Kong (RHS) Singapore (RHS)

Sources : FIBV & various stock exchanges

5

Market capitalisation back to pre-crisis level

50 100 150 200 250 300 350 400 450 500 Hong Kong PRC Singapore Taiwan

• S. Korea

(US$ billion)

end-1996 end-1998 end-July 1999

Sources : FIBV & various stock exchanges

6

SEHK - Market Capitalisation

(as of period end, HK$ billion)

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Aug- 99

7

Online Trading in US

 Internet financial transactions cost US1¢ vs.

paper-based transactions cost of US$1

 E-trading did not exist before 1995  4.4 million online investors as of end-1998  Online trading as % of retail trading:

1997 1998 H1 1998 H2 17% 22%

• approx. 32%

 Participation of large brokerage house (e.g.

Merrill Lynch) will further boost online trading

8

Number of years taken to penetrate into US families

38 17 13 7

10 20 30 40 50 Telephone Television Computer Internet  Every revolution comes in a shorter time span

Source : US Internet Forum

9

Online Trading in Asia

 South Korea

• online trading turnover at US$32 bn in Jun

99 was the second largest in the world

• as of end-Jul 99, there were some 1 million
• nline accounts

 Taiwan

• online trading turnover surged almost 50

times from US$31mn in Jan 99 to US$1.5 bn in Apr 99 (market turnover rose 2.5 times

• ver the same period)
• as of end-Jun 99, there were 40 companies

serving some 130,000 online accounts

Source : Lehman Brothers

1

Online Trading in Hong Kong

 Possible when the AMS/3 is launched in the 2Q

• f 2000

 Great potential in the future because :

• market capitalization of Hong Kong at

US$462 bn as of end-Aug 99 is the second largest in Asia after Japan

• liquid cash market with active turnover
• sophisticated derivatives for hedging
• internet is common and getting more

common in Hong Kong (internet usage in Jul 99 was 956 million minutes, more than twice the usage in Jul 98)

• gateway to China

1

Internet Usage in Hong Kong

(million minutes)

402 439 494 493 551 622 665 680 647 791 774 858 864 956 200 400 600 800 1000 1200 Jun-98 Jul-98 Aug-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 May-99 Jun-99 Jul-99

Source : Office of the Telecommunications Authority

1

Major Fund Raising Centre for China

 43 H-share Chinese enterprises listed on the

SEHK as of end-August 1999

 41 red-chip companies listed on the SEHK as

• f end-August 1999

 Total capital raised since 1993 = US$25 bn  Opportunities for Hong Kong

• Reform of state-owned enterprises
• Listing of China’s Global Bonds
• Growth Enterprise Market (GEM)

1

Potential of Chinese Securities Market

 Two markets - Shanghai & Shenzhen  Stock Market capitalization at US$349 bn at

end-Jul 99 was about 30% of GDP, and the market is growing fast

 Policy to use stock market to reform state-

• wned enterprises

 38 million individual investors  RMB not yet convertible, so Hong Kong

securities market major window into China

1

Mainland Stock Markets

• tremendous growth

(2) (14) (1070) (345) (599) (821) (931) (218) (75) (381) 50 100 150 200 250 300 350 400 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (1-7) Market capitalisation (US$ bn) 50 100 150 200 250 300 350 400 450 500 Market turnover (US$ bn)

• No. of securities

Market turnover Market capitalisation

( ) Source : Shanghai Stock Exchange & Shenzhen Stock Exchange

1

Preparing for the e-Economy

 Intermediaries need to re-evaluate their own

roles in a CYBER world

 Global investors in a hi-tech world view different

financial markets as one single market

 Provision of an one-stop high value added

financial supermarket (i.e. the linking up of different financial markets)

 Provision of an efficient and low risk settlement

platform (i.e. the linking up of trading and settlement systems)

 Provision of a 24-hour trading environment (i.e.

the linking up of different financial centres)

1

Three-Prong Reform Programme for the Securities and Futures Market

 Upgrading of technology

• design of open, secure, scripless and single

clearing infrastructure for securities, futures and options market

 Regulatory reform

• new Composite Securities and Futures Bill

by the end of 1999

 Structural reform

• Demutualisation, merger and listing of

Exchanges & Clearing Houses

1

Upgrading Technology to Compete

 Must upgrade technology & productivity through

DvP and PvP

 Unified clearing improves

• overall risk management
• cross margining efficiencies
• operational efficiency through STP (Straight

Through Processing)

1

Regulatory Reform

 Consolidate 9 existing securities

legislation & update to best international standards

• to provide sufficient protection to

investors

• to be technology and innovation

friendly

• to be disclosure based regulation

1

Demutualisation and Merger of the Exchanges and Clearing Houses -

Organisation Chart

 Demutualise, merge and list the exchanges and

clearing houses under a new holding company, the Hong Kong Exchanges and Clearing Limited (HKEC): Current SEHK members Current HKFE members

HKEC

HKSCC SEHK HKFE The Public

2

Growth Enterprise Market (GEM)



New Disclosure-based Board for fast growth companies to raise capital



Great interest from Mainland private enterprises + Taiwan corporations to tap external capital



Broaden investor choice and deepen market



To be launched in October 1999

2

Strategy to improve competition through Privatization



Telecom monopoly abolished and television/telecommunications open to competition



Mass Transit Railway Corporation to be privatized



Public housing management being privatized and water supply service under consideration



Interest rate rules to be removed



Utilities subject to market discipline and price competition

2

End of Presentation