FINANCIAL AND MONETARY AFFAIRS
Hong Kong's financial markets are characterised by a generally high degree of liquidity and operate under effective and transparent regulations which meet international standards. The educated work force and the ease of entry for professional expatriate staff further contribute to the development of financial markets in Hong Kong.
Hong Kong has a very strong presence of international financial institutions. At the end of the year, there were 164 foreign-owned banks. Of the world's top 100 banks in terms of monetary assets, 81 have operations in Hong Kong. In addition, 164 subsidiaries or related companies of foreign banks operate as restricted licence banks and deposit-taking companies, and 159 banks have representative offices.
The interbank money market is equally well established. Wholesale deposits are traded actively among local authorised institutions, and between local and overseas institutions, with an average daily turnover of $183 billion in 1997. The interbank money market is mainly for short-term money, with maturities ranging from overnight to 12 months, for both Hong Kong dollars and foreign currencies.
The traditional lenders of Hong Kong dollars are mostly the locally incorporated banks, while the major borrowers are foreign banks without a strong Hong Kong dollar deposit base. At the end of the year, the Hong Kong interbank market accounted for 18 per cent of the Hong Kong dollar liabilities of the banking sector. Hong Kong also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with other overseas centres enables foreign exchange dealing to continue 24 hours a day around the world. The latest survey co-ordinated by the BIS shows the daily average foreign exchange turnover in Hong Kong in April 1995 was US$91 billion, which represented 6 per cent of the world total and the fifth-largest in the world.
Hong Kong's derivatives market is among Asia's largest, reflecting the increased sophistication of its financial markets. Currency derivatives contracts (including forwards, currency swaps, options and futures) registered an average daily turnover of US$56 billion in April 1995 and the outstanding contracts amounted to US$970 billion. Interest rate derivatives recorded a turnover of US$18 billion per day and the outstanding contracts US$666 billion. Derivatives on stocks and commodities are less frequently used, with the outstanding amount at US$8 billion.
The local stock market was on a generally upward trend in the beginning of the year but was hard hit by the Asian currency crisis from August. For the first seven months of the year, the bullish Hang Seng Index rose gradually from 13 451 to its record intraday high of 16 820 on August 7. However, as the regional economies deteriorated and the Hong Kong-US dollar peg was under attack, the Hang Seng Index plunged to 10 723 at the end of the year. Despite severe volatility and uncertainty, Hong Kong's market has weathered the financial turmoil strongly and confidently. During the period, the operation of both the local stock futures markets has remained orderly and efficient. It is also fair to say that it fares strongly vis-a-vis other regional markets in terms of the impact of the challenge on the market taking into account the fact that the peg with US dollars has basically remained intact. Average daily turnover in the local stock market was $15.5 billion in 1997, which was a remarkable growth compared with the $5.67 billion seen in 1996.
At the end of the year, 658 public companies were listed on the Stock Exchange of Hong Kong Ltd. (SEHK). With a total market capitalisation of $3,202.6 billion, the
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