ENG-1990 — Page 101

FINANCIAL AND MONETARY AFFAIRS

negotiable certificates of deposit, 48 issues were arranged on fixed-rate terms and the remaining 13 issues on floating-rate terms. The latter generally assumed a longer maturity, ranging from five to ten years. At the end of 1990, the value of all outstanding Hong Kong dollar-denominated negotiable certificates of deposit amounted to $28 billion, compared to $26 billion at end-1989. Of these $28 billion, 47 per cent were held outside the local banking sector.

Of the nine new issues of commercial paper reported to the Securities and Futures Commission during 1990, eight were denominated in Hong Kong dollars. Following a successful issue in May 1989, the World Bank launched a second issue of Hong Kong dollar bonds in February and a third issue in December 1990. The total issue size was $500 million and $600 million, respectively.

In the local stock market, share prices continued their uptrend in the first seven months of 1990, with the Hang Seng Index achieving a larger gain than many share indices overseas. Institutional investors were reported to have stepped up their activity in the Hong Kong market in view of the lacklustre performance of the other bourses in the region. Some of the Hong Kong stocks were viewed as good buys, as their prices were com- paratively low after the oversold situation in mid-1989. From 2 837 at end-1989, the Hang Seng Index rose steadily to 3 560 on July 23, the highest level recorded after the October 1987 crash. However, the outbreak of the Gulf crisis in August reversed the bullish sentiment and the Hang Seng Index declined to 2 761 at end-September, before recover- ing to 3025 at the end of the year. Cushioned by the generally favourable market fundamentals, the extent of the decline experienced in the local stock market was smaller than those in many bourses overseas.

Turnover in the local stock market picked up considerably during the first seven months of 1990, along with rising share prices. Reflecting the cautious sentiment brought about by the Gulf crisis, turnover became more moderate from August. For 1990 as a whole, the average daily turnover stood at $1.2 billion, the same as the level recorded in 1989. The total volume of funds raised in the local stock market amounted to $9.7 billion in 1990, compared with $8.5 billion raised in 1989. Most of these funds were tapped through right issues (55 per cent) or private placements (27 per cent). The 13 new share issues together accounted for 18 per cent of the funds raised.

Trading in Hang Seng Index futures became more active in the latter part of 1990, particularly in the month of August. This probably reflected the increasing use of futures contracts as an instrument for hedging against volatility in the stock market. But for 1990 as a whole, the average daily turnover, at 951 contracts, was marginally lower than the 959 contracts in 1989. With a view to boosting activity in the Hang Seng Index futures market, trading cost was cut through a reduction in levy from mid-October. The Futures Exchange also reached an agreement with the Stock Exchange to allow members of the latter exchange to acquire membership at a reduced cost.

A new type of financial futures contract based on three-month Hong Kong dollar interbank offered rate (HIBOR) commenced trading in the Futures Exchange on February 7, 1990. Daily turnover was maintained at above 1 000 contracts during the first month of trading. But the market became rather quiet after mid-March, when the grace period during which statutory levies were waived terminated. From April to December, the average daily turnover dropped to 126 contracts. The moderate trading was to some extent related to the relative stability in interest rates. During the year, the three-month HIBOR

77