Annex FII
MR MAUDE'S VISIT TO HONG KONG, 17-19 SEPTEMBER BACKGROUND BRIEF (q): Current State of the
Financial Markets
(brief provided by HKG)
Stock Market
From a post October 1987 high of 3309.64 recorded in 15 May 1989, the Hang Seng Index took a heavy knock and fell to 2093.61 by 5 June. It has since recovered somewhat to close at 2610.15 on 12 September. Turnover, however, has been low and sentiment generally rather bearish, dominated by the situation in China and the health of Deng. This performance is causing some concern amongst market participants, against the background of very good performances in stock markets in other parts of the world.
The market has, however, withstood the volatility well. But the more difficult business climate for brokers has prompted rather more vocal objections on reform measures being introduced to the regulatory system, such as legislation on disclosure and insider dealing. This is not helpad by the fact that there are recently more companies moving their domicile overseas, thus enabling them to operate outside some of these legislative proposals for reform.
Futures Market
Despite the volatility in late May and early June in the Hong Kong stock market, and hence the Hang Seng Index, trading in the Hang Seng Index futuras market had remained orderly and there had been no reported cases of default by brokers.
The Futures Exchange was also able to adjust gin requirements promptly, commensurate with the higher Lisk associated with increased volatility. The number of contracts traded has been relatively low. But there is still a small premium in the futures contract over the Index itself, indicating market expectation of some gains in the Index in the immediate future.
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CONFIDENTIAL