FINANCIAL AND MONETARY AFFAIRS
70
Financial Markets
Hong Kong has a mature 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 around the globe. With an average daily turnover of about US$49 billion early in 1989, Hong Kong is among the largest markets in Asia, along with Tokyo and Singapore. Besides the Hong Kong dollar, most major currencies are actively traded in Hong Kong, including the US dollar, Deutschemark, Yen, Sterling, Swiss franc, Australian dollar and Canadian dollar. As a market in foreign exchange, Hong Kong is favoured by a host of factors such as a favourable time zone location, a large volume of trade and other external transactions, the presence of a large number of international banks with experience in foreign exchange transactions, the absence of exchange controls and a highly advanced telecommunica- tions 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 among authorised institutions in Hong Kong, and between local and overseas institutions. This market is mainly for short-term money with maturities ranging from overnight to six months for Hong Kong dollars and to 12 months for US dollars. The traditional lenders of Hong Kong dollars in the market tend to be the local banks, while the major borrowers are those foreign banks without a strong Hong Kong dollar deposit base.
As an indication of the size of the market, at the end of 1990, interbank liabilities accounted for 37 per cent of the total Hong Kong dollar liabilities of the banking sector; the corresponding share for foreign currency interbank liabilities was 78 per cent.
The capital market is an important source of finance for corporate borrowers. The two main types of negotiable debt instrument traded in the market are certificates of deposit issued by authorised institutions and commercial paper issued by other private sector companies. This market experienced a rapid expansion in the mid-1980s, gaining momentum from the global trend of securitisation of debt, the importation of innovative financial products (particularly interest rate swaps) and declines in interest rates during most of that period. Although the majority of issuers are locally-based institutions, a number of non-resident institutions have also tapped funds from Hong Kong's capital market. A notable example is the three issues of Hong Kong dollar bonds launched by the World Bank in 1989 and 1990. The launching of Exchange Fund Bills in March added a new dimension to the local capital market. The bills are available in minimum denominations of HK$500,000 and are issued on a discount basis by tender. Tenders are open to recognised dealers selected from institutions authorised under the Banking Ordinance. To promote secondary market activity, market makers have been appointed from among the recognised dealers. All 91-day bills are issued weekly and, starting in October, 182-day bills are issued fortnightly. At the end of 1990, outstanding issues of 91-day bills amounted to $6.2 billion and of 182-day bills to $1.3 billion.
The stock market provides another important source of capital for local enterprises. It attracts both local and overseas investors. At the end of 1990, 299 public companies, with a total market capitalisation of $650 billion, were listed on the Hong Kong Stock Exchange. This has made it the third largest stock market in Asia, after Japan and South Korea.