ENG-1982 — Page 78

FINANCIAL SYSTEM AND ECONOMY

Monetary Aggregates and Interest Rates

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The Monetary Statistics Ordinance of 1980 paved the way for the collection of improved statistics for monitoring monetary developments. Appendices 11 and 12 are based on these new series. During 1982, the Hong Kong dollar money supply grew more slowly than in 1981, but the total money supply grew much more rapidly, being influenced in particular by the increase in foreign currency deposits once interest on them became exempt from interest tax.

Hong Kong dollar interest rates declined on balance during the year, largely in sympathy with similar movements in the world's major economies, particularly the United States. The government is able to exert some influence on local rates: under an operational arrangement with one of its bankers it can draw funds from, or inject funds into, the local money market thereby tightening or easing market rates. The government can have a further, limited influence in the money market by altering the mix of the Exchange Fund's deposits with banks, between those at maturities of seven days or less, against which the banks must hold 100 per cent liquidity, and those at more than seven days, against which the liquidity requirement is only 25 per cent. Meanwhile, the Hong Kong Association of Banks is obliged to consult the government regarding the level of maximum rates set under the association's interest rate rules, although any decision rests ultimately with the association.

Stock Market

The Stock Exchange of Hong Kong Limited, the company recognised for the purpose of promoting, and in due course operating, a single unified exchange in Hong Kong, celebrated the second anniversary of its incorporation in July. At the end of 1982 the company had 942 members and three associate members.

In February, a site adjacent to the Connaught Centre in Central District was sold by the government by public tender for a record price of $4,755 million. Conditions of sale of this site required the successful tenderer to provide accommodation for the unified exchange on the podium level of the building to be constructed. Construction of a twin-tower building to be called Exchange Square has commenced.

In the meantime, trading continues on the existing four exchanges. The turnover for 1982 was: Far East Exchange, $21,109 million; Hong Kong Stock Exchange, $9,858 million; Kam Ngan Stock Exchange, $15,193 million; and Kowloon Stock Exchange, $69 million. The total of $46,229 million was 56.4 per cent lower than in 1981. The Hang Seng index, having lost ground sharply after worries about Hong Kong's future came to the fore in late September and as the weakness of the property market became apparent, ended the year at 783.82 (July 31, 1964100), compared to 1 405.82 at the end of 1981.

Staff of the office of the Commissioner for Securities continued to monitor securities transactions and to scrutinise unusual movements in the prices of securities. The year also saw the publication of the Insider Dealing Tribunal's first report. In July 1980, the tribunal had started formal hearings of an inquiry into possible insider dealing in the shares of Hutchison Whampoa Limited at some time prior to September 26, 1979. The tribunal reported in March 1982 that there had been no insider dealing in these shares in the Hong Kong market and that it had found no evidence of culpable insider dealing elsewhere.

The Takeovers Committee, a sub-committee of the Securities Commission which is chaired by the Commissioner for Securities, continued to administer the Hong Kong Code on Takeovers and Mergers. In 1982, 14 takeovers and mergers occurred where the offeror