TNAG-0379-FCO40-425-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1973 — Page 168

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CONFIDENTIAL

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There are no statistics to indicate the relative strengths of internal and external demand for equities at the time. In the earlier stages of the bull market foreign investors appear to have been to the fore: in the Spring of 1972 U.K.investment money was reported to be entering Hong Kong "at a rate of several million pounds a week". The impression is that the initial foreign boost to share values both encouraged local investors and the promotion of new issues. Many companies went public, usually putting out, say, 25% of their capital at absurdly low prices apparently because of the prestige associated with over-subscription (up to 400 times was not abnormal) and the subsequent enormous increase in value which enabled the issuers then to sell further family-held shares at a very substantial profit indeed.

The investing or, rather, gambling public

in order to finance their share purchases delayed paying their bills, drew on their savings and resorted to bank and finance company

credit.

Savings deposits with the banks fell from H.K.$8,306 m. in December 1972 to H.K.$6,725 mn. in March 1973. The amount of bank and finance house money which supported equity purchases is not known: there are no statistics relating to finance company operations and although bank lending is analysed by broad categories one cannot know whether advances were in fact used for the purposes indicated in the statistics. However, in January 1973 the Banking Commissioner in a letter to the banks stated that banking figures for September 1972 indicated that more than 20% of total bank advances

were made against shares.

The following official statistics are

relevant:

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