ENG-1995 — Page 112

FINANCIAL AND MONETARY AFFAIRS

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The stock exchange launched stock options contracts in respect of HSBC Holdings plc in September 1995. By the end of the year, options contracts in respect of eight other stocks had also been launched. During the year, the futures exchange also began trading in currency futures and three stock futures contracts.

Hang Seng Index Options and Hang Seng Index Futures remained actively traded. Average daily turnover for index options increased from 2 446 contracts in 1994 to 2 614 in 1995. The volume of index futures trading averaged 18 407 contracts a day in 1995, compared with 16 906 contracts a day in 1994.

Hong Kong has an active gold market, in which the main participants are banks, major international bullion houses and gold trading companies. It is commonly known as the Loco-London gold market, with prices quoted in US dollars per troy ounce of gold of 99.95 per cent fineness and with delivery in London. Trading in this market has expanded in recent years. The price of Loco-London gold moved between US$371 and US$397 in 1995. The price of gold rose from US$383 per troy ounce at the end of 1994 to US$386.50 per troy ounce at the end of the year.

The Chinese Gold and Silver Exchange Society operates one of the largest gold bullion markets in the world. Gold traded through the society is of-99 per cent fineness, weighed in taels (one tael equals approximately 1.2 troy ounces) and quoted in Hong Kong dollars. Prices closely follow those in the other major gold markets in London, Zurich and New York. The price of gold at the Chinese Gold and Silver Exchange Society exhibited movement similar to that of Loco-London gold. At the -end of the year, gold cost $3,569 per tael compared with $3,533 at the end of 1994.

Turnover on the exchange totalled 18 million taels in 1995.

The number of authorised unit trusts and mutual funds increased to 1 183 at the year's end, from 978 a year earlier.

Increasing Financial Links Between Hong Kong and China

Hong Kong has been functioning as China's primary channel for international fund raising. However, the cross-border financial interactions have by no means been one- way. Direct investment and inter-bank financial flows in both directions have grown rapidly. Hong Kong banks have also stepped up their business involvement in China. Hong Kong has facilitated China's international fund-raising activities via the territory's equity and debt markets. At the end of 1995, 17 Chinese state-owned enterprises were listed in Hong Kong through the issuance of H-shares, raising a total of more than $20 billion. Bonds issued by China's Ministry of Finance, the People's Construction Bank of China, and other major financial institutions are traded on the Hong Kong Stock Exchange.

Cross-border financial flows among financial institutions have also grown rapidly. Over the years, China has accumulated a substantial amount of funds in Hong Kong dollars and other foreign currencies from trading activities and inward investment involving Hong Kong. These funds are placed with financial institutions in China and subsequently channelled back to Hong Kong through the inter-bank market.

Since 1980, external liabilities of Hong Kong authorised institutions to financial institutions in China have grown at an average rate of over 40 per cent per annum to well over $200 billion by December 1995. Over the same period, claims on financial institutions in China by authorised institutions in Hong Kong registered an annual growth of almost 30 per cent to approach $300 billion.