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THE ECONOMY
Only members of the Stock Exchange of Hong Kong Limited are permitted to trade as stockbrokers. At the end of 1987, the Stock Exchange had 773 corporate members and individual members. Only members and shareholders of the Hong Kong Futures Exchange Limited can trade as dealers in futures. At the end of 1987, the Futures Exchange had 92 members.
Insurance companies are authorised by the Insurance Authority to transact insurance business in Hong Kong. At the end of 1987, there were 278 authorised insurance companies. Of these, 152 were overseas companies from 28 countries. As at end-December 1987, there were 16 applications for authorisation outstanding, 13 of which were from overseas companies.
Financial Markets
Hong Kong has a well-established and active foreign exchange market, which forms an integral part of the corresponding global market. The link with other major overseas centres enables foreign exchange dealing to continue 24 hours a day round the globe. The major currencies traded on the local market include the US dollar, Deutschemark, Yen, Sterling, Swiss franc, the Australian dollar and the Hong Kong dollar. As a market in foreign exchange, Hong Kong is favoured by its time zone location, by its large volume of trade and of other external transactions with the resulting demand for and supply of foreign currencies, by the presence of a large number of international banks with experience in foreign exchange transactions, by the absence of exchange controls, and by a highly advanced telecommunications system.
Equally well-established and active is the interbank money market, in which wholesale Hong Kong dollar deposits and foreign currency deposits (mainly in US dollars) are traded both between deposit-taking institutions in Hong Kong, and between local and overseas institutions. This market is mainly for short-term money - from maturities ranging from overnight up to six months for Hong Kong dollars and up to 12 months for US dollars. The traditional lenders of Hong Kong dollars in the market tend to be the locally-incorporated banks with well-established deposit bases, while the major borrowers are those foreign banks without a strong deposit base in Hong Kong. As an indication of the size of the market, at end-December 1987, Hong Kong dollar interbank liabilities constituted 33 per cent of that part of the total liabilities of the banking sector which are denominated in the local currency; the corresponding share for foreign currency interbank liabilities was 80 per cent. A further money market in which banks and deposit-taking companies participate is the Hong Kong dollar forward rate market. This market has become increasingly active since the introduction in February 1987 of standard terms and conditions by the Hong Kong Association of Banks.
As the Hong Kong Government is a net lender rather than a net borrower and as the amount of government debt outstanding is very small, the term 'capital market' normally refers to the market in private sector negotiable debt instruments. The two main types of debt instruments traded in the market are certificates of deposit (CDs) issued by deposit- taking institutions and commercial paper (CP) or bonds issued by other types of companies. This market has developed rapidly over the last three years or so, gaining momentum from the global trend in securitisation and from the importation of innovative financial products, notably interest rate swaps. However, 1987 was a year of consolidation for the market as a whole.
The stock market continues to provide an important source of capital for local enterprises, with significant and growing interest from both local and overseas investors;