TNAG-2749-FCO40-3964-Economic-situation-in-Hong-Kong-1993 — Page 189

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13

3.2.93

RECI

10 FEB 1010

HONG KONG FINANCIAL MARKETS: JANUARY 1993

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• A quiet month, with markets recovering lost ground despite renewed Chinese criticism of

Patten's democracy proposals.

• HK$ stable and stronger than link rate at 7.73 • Prime Rate unchanged at 6.5%

• Premium of HK interest rates and bond yields over US rates narrowed to 0.3%

•

HangSeng Index continued to rise, reaching 5,900 on 27 January before small fall

China's stance toward Hong Kong stayed firm in January. Signs of compromise from both sides in early January supported share prices but the Chinese have renewed their criticism after HK's announcement to establish an electoral boundaries commission.

HK$ stayed strong at around 7.73 per US$ during January. With HK interest rates staying above US rates, exchange rate fluctuations were mild and did not pose any threat to the link rate of 7.80 per US$.

3-month HIBOR fell to 3.5% at end-January from 4.3% a month earlier. While US rates fell slightly too, premium of HIBOR over US$LIBOR narrowed from 0.8% to 0.3%.

Prime rate stayed at 6.5%

EF Bill/HKG Bond yield curve stayed above the US T-Bill yield curve on maturities between 3 months and 2 years, with premium ranging upto 0.8% compared with maximum HK risk premium of 1.0% in December. For interest rates below 3 months maturity, US curve moved above HK.

Hang Seng Index: continued to recover in January reaching 5900 on 27th as both the China and Hong Kong hinted at a wish to achieve compromise on Patten's democracy proposals. However, index still well below mid-November peak of 6947. Hang Seng has since slipped back to 5700 following renewed Chinese criticism of Patten's constitutional proposals. News of Patten's health problems not affected markets at time of going to press. Following China's verbal attack on Jardine Matheson, Jardine Fleming may have been bridge-mending in recommending investors to buy Chinese owned CITIC Pacific in one their first circulars of 1993. The HSBC share price followed the market, rising from HK$55 to HK$63 before slipping to HK$60.

Legislation establishing the new Monetary Authority passed. Likely formally to start up in March/April. Announced that Bank of China will join HSBC and Standard Chartered as HK note issuers probably during 1994.

HangSeng Index Option contract to trade alongside Futures contract from 5 March.

* Copies to Mr Crockett, Mr Townend, Mr T A Clark, Mr Page, Mr Elston, Mr Wright, Mr Smeeton,

Mr Sutherland, Mr D A Ware, Mr Collins, Mr Miles, Mr Milne, Mr Osborne, ID Sections 6 9, BSD Groups 4 5 18; Mr Ricketts (FCO), Mr Cox (FCO), Mr Lane (FCO), Mr MacIntyre (HMT), Mr Livingstone (HMT).

A monthly note from Developing World Division HO-3, Middle & Far East

J W Lund (4483)

of

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