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

Hong Kong’s Financial Markets: Positioning for the 21st Century by Mr. Andrew Sheng Chairman Securities and Futures Commission 18 September 1999 1

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 2

Hong Kong’s GDP (in USD terms) remains at pre-crisis level (1996=100) 120 1996 1997 1998 1999f 100 80 60 40 20 0 Hong Kong Singapore Taiwan South Korea Thailand Malaysia Indonesia Philippines Remarks: 1999 are ADB forecasts; exchange rates for 1999 are the averages of Jan-Jul 1999 3

Market Turnover Stabilizing and Rebounding (US$ billion) 200 100 Taiwan (LHS) S. Korea (RHS) 160 80 Hong Kong (RHS) Singapore (RHS) 120 60 80 40 40 20 0 0 Jan-96 Jul-96 Jan-97 Jul-97 Jan-98 Jul-98 Jan-99 Jul-99 Sources : FIBV & various stock exchanges 4

Market capitalisation back to pre-crisis level 500 end-1996 450 end-1998 400 end-July 1999 350 (US$ billion) 300 250 200 150 100 50 0 Hong Kong PRC Singapore Taiwan S. Korea Sources : FIBV & various stock exchanges 5

SEHK - Market Capitalisation (as of period end, HK$ billion) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 Aug- 99 6

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 7

Number of years taken to penetrate into US families  Every revolution comes in a shorter time span 50 38 40 30 20 17 13 10 7 0 Telephone Television Computer Internet Source : US Internet Forum 8

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 online 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 over the same period)  as of end-Jun 99, there were 40 companies serving some 130,000 online accounts Source : Lehman Brothers 9

Online Trading in Hong Kong  Possible when the AMS/3 is launched in the 2Q of 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) 1200 956 1000 864 858 791 774 800 680 665 647 622 551 600 494 493 439 402 400 200 0 Jul-98 May-99 Jul-99 Jun-98 Sep-98 Oct-98 Nov-98 Dec-98 Jan-99 Feb-99 Mar-99 Apr-99 Jun-99 Aug-98 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 of 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- owned enterprises  38 million individual investors  RMB not yet convertible, so Hong Kong securities market major window into China 1

Mainland Stock Markets - tremendous growth 400 500 (1070) 450 ( ) No. of securities 350 400 (821) Market turnover Market capitalisation (US$ bn) 300 350 (931) Market capitalisation Market turnover (US$ bn) 250 300 (599) 200 250 200 150 150 100 (345) 100 (381) (218) 50 50 (14) (75) (2) 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (1-7) 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 Current The HKFE SEHK Public members members HKEC HKSCC SEHK HKFE 1

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 2