TNAG-2466-FCO40-3590-Economic-situation-in-Hong-Kong-1992 — Page 110

(c) Government bond yields fell in the second auction of two-year bonds held on 17 February. Average accepted yield fell from 5.68% at the first auction to 5.52%, as demand fell (the first issue was

4.43 times over-subscribed, the second one only 2.21 times) on

expectations that interest rates have bottomed out.

(d) Exchange Fund Bills mixed: One-year bill average accepted yields rose 41 bp to 4.78% at the end-January auction, while 91-day

bill yields declined 56 bp to 3.71% at the 11 February auction.

(e) Hang Seng index rose 327 points (7.1%) in February to 4929 by

the end of the month. The biggest rises were when the stock

exchange reopened on 7 February after Chinese New Year, on 12-13

February when the index recovered after a temporary fall on the

back of heavy warrant trading (see para 2.d), and in the last week

of February. when confidence was buoyed by positive China factors

(see para 2.c).

Hong Kong Economic News

4 (a) 1991 Third quarter GDP growth 3.6%, driven mainly by

re-exports, and below the expectations of some commentators.

(b) Year-on-year CPI (A) inflation increased slightly to 10.5% in

January from 10.3% in December 1991, due to high consumer spending

ahead of Chinese New Year.

(c) January year-on-year trade figures volatile, with domestic exports falling 26.1% to US$14 bn, re-exports virtually unchanged

at US$39 bn and imports contracting 7.8% to US$56 bn compared with

the January 1991 figures. The adverse trend was partly blamed on the earlier timing of Chinese New Year in 1992.

Future Events

5 (a) Budget due on 4 March. Changes in corporate tax structure expected, which may affect stock market if not already discounted.

(b) Meeting of China's NPC (National People's Congress) due in

late March, will be watched closely by Hong Kong markets.

(c) Annual Results season continues until end-March. Several

dominant companies like HSBC have yet to announce their results.

Developing World Division HO-3

Far East

3 March 1992

J W Lund

Jarks'n Simel

2: