FINANCIAL AND MONETARY AFFAIRS
Kong to develop into an important international financial centre. The absence of any restrictions on capital flows into and out of Hong Kong is another important factor. 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 year's end, there were 156 foreign-owned banks. Of the world's top 100 banks, 79 have operations in Hong Kong, while 145 subsidiaries or related companies of foreign banks operate as restricted licence banks and deposit-taking companies, and 141 banks have representative offices.
The interbank money market is well established. Wholesale deposits are traded actively among local authorised institutions, and between local and overseas institutions, with an average daily turnover of $155.8 billion in 1998. The interbank money market is mainly for short-term money, with maturities ranging mostly 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 December 1998, the Hong Kong interbank money market accounted for 14.4 per cent of the gross 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 1998 was US$78.6 billion, which represented 4 per cent of the world total and the world's seventh-largest.
Hong Kong's derivatives market is among Asia's largest, reflecting the increased sophistication of its financial markets. Currency derivatives contracts (including currency swaps, options and other OTC derivatives) registered an average daily turnover of US$1.4 billion in April 1998, compared with US$0.7 billion in April 1995. In addition, foreign exchange forward transactions (including outright forwards and foreign exchange swaps) amounted to US$47.6 billion per day in April 1998, or 5 per cent of the world total. Interest rate derivatives recorded an average daily turnover of US$2.4 billion in April 1998, compared with US$3.5 billion in April 1995.
The year of 1998 was a difficult year for many Asian financial markets as the financial turmoil in the region intensified and its contagion spread further from the region to South America and Eastern Europe. Hong Kong as an international financial market was not immune and our securities market experienced considerable volatility in the course of the year. That notwithstanding, the stock market remains one of the world's largest in terms of market capitalisation and the second largest in Asia. The Hang Seng Index recovered from its year-low at 6 660 on August 13 to 10 048 as at the end of the year, or about 6 per cent lower than in 1997. Average daily turnover in the local stock market was $6.9 billion in 1998, which represented a substantial contraction from $15.5 billion in the buoyant 1997.
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