ENG-2005 — Page 102

72 | Financial and Monetary Affairs

Hong Kong as an International Financial Centre

A favourable geographical position, bridging the time gap between North America and Europe; strong links with the Mainland and other economies in Southeast Asia and excellent communications with the rest of the world; the rule of law; a level playing field and a sound regulatory regime have all helped Hong Kong develop into both a leading international financial centre in the region and the premier capital formation centre for the Mainland. The absence of restrictions on capital flows into and out of Hong Kong is another important strength.

Hong Kong's financial markets are characterised by a high degree of liquidity. They operate under effective and transparent regulations, which are in line with international standards. A highly educated workforce and ease of entry for professionals from outside Hong Kong also contribute to the development of its financial markets.

International financial institutions maintain a strong presence in the city. Of the world's top 100 banks, 71 have operations in Hong Kong. At the end of 2005, there were 175 foreign-owned authorised institutions, which included 121 licensed banks, 32 restricted licence banks and 22 deposit-taking companies. A further 86 foreign banks have established local representative offices in Hong Kong.

The interbank money market is well established. Wholesale deposits are traded actively among local authorised institutions (Als), and between local and overseas institutions, with an average daily turnover of $247 billion in 2005.

Hong Kong also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with overseas centres enables foreign exchange dealing to continue 24 hours a day with the rest of the world. The last triennial survey coordinated by the Bank for International Settlements in April 2004 shows that the daily average foreign exchange turnover in Hong Kong is US$102 billion, which represents 4 per cent of the world's total transactions and makes Hong Kong the world's sixth largest foreign exchange market.

With a total market capitalisation of about $8,180 billion at year-end, the Hong Kong stock market ranked eighth in the world and second in Asia, following Japan1. The daily turnover averaged $18.2 billion in 2005. At year-end, 1,135 public companies were listed on the Stock Exchange of Hong Kong (SEHK). The 64 newly listed companies raised a total of $165.7 billion from initial public offerings (IPOs). Besides new share issues, a total $135.4 billion was raised on the secondary market. The Real Estate Investment Trust (REIT), which was first listed on the SEHK in November, was one of three REITs listed during 2005. They raised $25.5 billion in total.

The Hong Kong stock market is an important fund-raising platform for Mainland enterprises. Of the 122 Mainland-incorporated enterprises listed outside the Mainland, 120 were listed on the SEHK. At year-end, there were 335 Mainland

1 Source: World Federation of Exchanges.