Hong Kong’s Financial Markets: Positioning in the Asia Pacific Region Andrew Sheng Chairman Securities and Futures Commission 17 August 2004 1
Largest Market in Asia-ex-Japan ♦ Stock Market: Market cap at US$712.2 bn as of end Jun 2004 – the largest stock market in Asia-ex-Japan ♦ Derivatives Market: 14.5 mn contracts traded in 2003 (11 mn contracts in 2002) ♦ For the 12 months ending Sep 2003, Institutional investors accounted for 58% of the turnover Overseas investors accounted for 39% of the turnover ♦ 1,068 companies listed on HKEx at end Jun 2004 ♦ Major fund raising centre for Mainland enterprises ♦ Securities market supported by highest concentration of international legal and accounting firms in Asia 2
Hong Kong – the Largest Market in Asia-ex-Japan (US$ bn) 800 end 1988 9.6x end 2000 700 end 2001 N/A 4.3x 600 end 2002 end 2003 500 end Jun 2004 3.1x 400 3.2x 300 200 7.7x 100 0 China Hong Kong Australia Taiwan Korea Singapore Remark: x = increase from end 1988 to end Jun 2004 3 Sources : WFE and IFC
Capitalization and Turnover of Major Markets (end Jun 2004, US$ bn) Market change over Market change over P/E Cap Jun 03 Turnover Jun 03 ratio Australia 598 31.7% 451 43.2% 27 China 488 -2.9% 492 37.5% 27 Hong Kong 712 40.0% 427 131.8% 17 India 213 52.0% 269 104.1% n.a. Indonesia 54 32.0% 24 127.4% n.a. Japan 3,442 53.8% 3,136 110.6% 18 Korea 302 30.0% 519 12.9% 13 Malaysia 172 25.4% 72 179.1% 15 Philippines 25 14.8% 3 80.7% 17 Singapore 184 59.4% 120 112.2% 18 Taiwan 376 31.1% 813 62.6% 15 Thailand 101 66.6% 151 314.5% 10 Germany 1,064 30.4% 1,544 35.3% 30 UK 2,502 26.0% 4,598 27.9% 16 US (NYSE) 11,567 17.3% 10,874 12.0% 20 US (Nasdaq) 2,843* 26.1% 8,343* 36.0% 63 Remarks: Turnover - for the 12 months ending Jun 2004, P/E ratio - end Jun 2004 * as of May 2004 P/E ratio for China is the weighted average of A and B shares markets Data for India includes only those from National Stock Exchange of India Limited 4 Sources: WFE and websites of various exchanges
Hang Seng Index 10000 12000 14000 16000 18000 2000 4000 6000 8000 0 Jun-97 Oct-97 HSI and Turnover Rebounded Feb-98 Jun-98 Oct-98 Feb-99 Jun-99 Oct-99 Feb-00 Jun-00 Oct-00 Feb-01 Jun-01 Oct-01 Feb-02 Jun-02 Hang Seng Index Market Turnover Oct-02 Feb-03 Jun-03 Oct-03 Feb-04 Jun-04 0 100 200 300 400 500 600 700 Market Turnover (HK$ bn) 5
Turnover rebound was across the board… Compared to Apr 2003, turnover of all stock types in Apr ♦ 2004 increased HSI: +41% H-shares: +311% Average Daily Turnover (US$ mn) 3,000 Red-chips: +108% Others: +144% 808 2,500 HSI H-shares Red-chips Others 816 2,000 540 662 650 453 464 1,500 619 425 503 338 474 326 457 446 878 382 1,000 296 344 308 291 557 625 526 295 422 190 217 201 699 256 157 178 328 301 254 212 500 128 162 791 663 652 645 573 588 497 500 456 422 408 412 388 0 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 Jan-04 Feb-04 Mar-04 Apr-04 Remark: Where a company belongs to both HSI and red chips, it is classified into red chips 6 Source: HKEx
Index and P/E of the H-share index still below historical high levels 8,000 40 H-share Index P/E Ratio 7,000 35 6,000 30 5,000 25 4,000 20 3,000 15 2,000 10 1,000 5 0 0 01/94 07/94 01/95 07/95 01/96 07/96 01/97 07/97 01/98 07/98 01/99 07/99 01/00 07/00 01/01 07/01 01/02 07/02 01/03 07/03 01/04 Remark: P/E ratio prior to Aug 1994 was not available. Sources: CEIC, HSI Services, Bloomberg 7
Rise of H-shares and Red chips 1996 1997 1998 1999 2000 2001 2002 2003 2004 Jun Number of Listed Companies (period end) Total (Main Board + GEM) 583 658 680 708 790 867 978 1,037 1,068 Mainland enterprises 69 98 104 112 119 127 146 164 199 - H-shares 23 39 41 44 50 58 74 92 103 - Red chips 46 59 63 68 69 69 72 72 74 Market Capitalisation (period end, HK$ bn) Total (Main Board + GEM) 3,476.0 3,202.3 2,661.7 4,734.7 4,862.5 3,946.3 3,611.3 5,547.8 5,555.3 Mainland enterprises 294.8 521.6 368.5 1,000.1 1,290.5 1,011.6 938.8 1,606.0 1,538.4 - H-shares 31.5 48.6 33.5 41.9 86.1 101.7 131.6 408.2 398.9 - Red chips 263.3 473.0 335.0 958.2 1,204.4 909.9 807.2 1,197.8 1,139.5 Market Turnover (12 months ending, HK$ bn) Total (Main Board + GEM) 1,412.3 3,789.0 1,701.0 1,919.5 3,131.9 1,989.5 1,643.1 2,583.8 3,783.9 Mainland enterprises 160.3 1341.5 442.9 458.3 846.9 749.2 453.3 1,000.4 1,594.9 - H-shares 24.9 297.8 73.5 102.8 171.2 251.4 143.6 506.1 914.4 - Red chips 135.4 1,043.7 369.4 355.5 675.7 497.8 309.7 494.3 680.5 # H-shares and red chips now account for 28% of market capitalisation and 42% of market turnover. Source: HKEx 8
Stock Market Performance (since end Jun 1997) Stock Market Indices % change end Jun 97 end Jun 04 in local currency in USD Australia 2,726 3,530 29.5 20.1 Hong Kong 15,197 12,286 -19.2 -19.7 India 1,192 1,506 26.3 -1.9 Indonesia 725 732 1.1 -73.8 Japan 20,605 11,859 -42.4 -39.4 Korea 745 786 5.4 -19.3 Malaysia 1,077 820 -23.9 -49.4 Philippines 2,809 1,579 -43.8 -73.6 Shanghai A 1,307 1,469 12.4 12.6 Shenzhen A 449 369 -17.9 -17.8 Singapore 1,921 1,838 -4.3 -20.3 Taiwan 9,030 5,839 -35.3 -46.8 Thailand 527 647 22.6 -26.0 Germany 3,786 3,786 7.1 -1.7 UK 4,605 4,464 -3.1 6.0 US (Dow Jones) 7,673 10,435 36.036.0 (Nasdaq) 1,442 2,048 42.0 42.0 9
Tremendous Growth in Mainland Stock Markets 800 800 (1086) ( ) No. of listed companies 700 700 Market capitalisation (US$ bn) Market turnover Market turnover (US$ bn) 600 600 Market capitalisation (1336) 500 500 (1160) (1287) (949) (745) 400 400 (1224) (851) 300 300 (530) 200 200 (291) 100 100 (323) (183) (53) (14) (10) 0 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Jun- 04 * Turnover - for the 12 months ending Jun 2004 Sources: Shanghai Stock Exchange & Shenzhen Stock Exchange 10
Potential of Chinese Securities Market ♦ Shanghai & Shenzhen – 1,336 listed companies at end Jun 2004 ♦ 3 rd largest in Asia, with a market cap of US$488.2 bn at end Jun 2004, 46% of GDP ♦ High domestic savings can be used by securities markets to deleverage Chinese enterprises, improve corporate governance, accelerate competitiveness ♦ China’s entry to WTO: deepen reforms in the securities markets greater access to the Chinese market ♦ Great potential for securities market development ♦ Olympic Games 2008 in Beijing ♦ World Expo 2010 in Shanghai 11
Hong Kong As a Major Fund Raising Centre for the Mainland ♦ 177 Mainland companies as of end Jun 2004, constituting 28% to the total market cap ♦ In 2003, Mainland enterprises raised US$6.8 bn directly and indirectly through HK ♦ In 2002, they raised US$9.1 bn through HK, about the same as the total funds raised from the A markets of Shanghai & Shenzhen ♦ Opportunities for Hong Kong Listing of China’s Global Bonds Growth Enterprise Market (GEM) IPO of Chinese enterprises accounts for 50%+ of HK’s total IPO 12
Three-Pronged Reform Programme ♦ Three-pronged reforms introduced in 1999 largely in place Market reform: SEHK and HKFE were demutualized and merged to form the HKEx in Mar 2000, HKEx was listed on 27 Jun 2000 Infrastructure reform: fully electronic web- friendly world- class high tech infrastructure Legislative reform: The SF Bill was enacted on 13 March 2002 and effective in Apr 2003 13
Hong Kong’s derivative warrants market was the 2 nd active in the world in 2003 Turnover of Derivative Warrants by Major Markets (US$ mn ) 50,000 45,000 2001 2002 2003 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Germany^ Hong Kong Euronext* Switzerland Italy Remarks: * Figures for Euronext are the aggregate figures from the exchanges of Amsterdam, Brussels, Lisbon and Paris. ^ Figures for Germany are the aggregate figures from all German Exchanges (Deustche Borse). Source: HKEx, Exchange, April 2004, pp. 40-58 WFE Monthly Statistics, December 2003 14
Great development potential for bond market (% of GDP, 2003) Bank Credit * Equity Market Bond Market* China 140 36 33 Hong Kong 149 451 27 India 36 42 33 Japan 107 68 169 Korea 115 49 81 Singapore 112 144 66 Taiwan 125 133 33 Thailand 82 83 38 UK 154 135 68 US 78 130 156 * Figures as of 2002 Sources: World Bank, IMF, WFE, CEIC, Bloomberg, BIS, International Financial Statistics, various central banks and government websites 15
Secrets behind HKSAR’s Success: The 5 Ps Prudential framework Rule of Law International regulatory standards Policy Freest economy for 9 years (1995-2003) Low tax rate and simple tax system People Critical mass of institutional investors and intermediaries Wealthy, high savings rate and deep risk appetite Platform - Sophisticated financial infrastructure Products - Wide range of financial products and derivatives tools including stocks, warrants, futures, options, EFNs, corporate bonds, funds ... 16
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