Title: Institutional investors in the Hong Kong securities market
1Institutional investors in the Hong Kong
securities market
- Paul M Y Chow
- Chief Executive, HKEx
- Presentation to the Hong Kong Retirement Schemes
Association - 2 March 2005
2Agenda
- Overview of the Hong Kong securities market
- Institutional Investor Profile - Overall
- Local institutional investor profile
- Overseas institutional investor profile
- Regulatory/infrastructure developments affecting
institutional investors - Business developments affecting institutional
investors - China Dimension
3Overview of the Hong Kong securities market
Hong Kong stock market is 16 times its size in
1986
4Overview of the Hong Kong securities market
Hong Kong was third in equity funds raised in 2004
Rank Exchange Equity Funds Raised (US billion)
1 New York 126.1
2 Spain 39.6
3 Hong Kong 35.4
4 London 33.4
5 Toronto 30.5
6 Euronext 26.8
7 Tokyo 25.8
8 Australia 25.6
9 Nasdaq 14.7
Others Others Others
- Shanghai 5.7
- Shenzhen 2.9
Source Provisional figures (Jan-Dec 04) World
Federation of Exchanges (not include exchanges
for which statistics are not available).
Includes capital raised by issuers cross-listed
on other exchanges i.e. double counting
involved WFE monthly statistics report available
up to 14 Feb 2005
5Overview of the Hong Kong securities market
- Cash market (Main board GEM) as at end of 2004
- Global ranking by market capitalisation 9th
- No. of listed companies 1,096
- No. of newly listed companies (2004) 70
- Market capitalisation HK6,696 billion
- Turnover value HK3,974 billion
- Funds raised by IPO HK97.2 billion
- Total equities funds raised HK281.4 billion
- Products equity, warrants, ELI, unit trusts and
debt securities
6Overview of the Hong Kong securities market
Hong Kong derivatives market has increased 24
times since 1986
7Overview of the Hong Kong securities market
- Derivatives market (as at end of 2004)
- Global ranking by turnover 35th
- Total turnover 19,629,692 contracts (?35
compared to 2003) - Hang Seng Index futures 8,601,559 contracts
- Products futures and options on stocks, stock
indices and interest rates
8Institutional Investor Profile - Overall
Institutional investor is the largest contributor
to stock market turnover, except in 1997 and 2000
Source Cash Market Transaction Survey
2003/2004, HKEx
9Institutional Investor Profile - Overall
Institutional investors also actively
participated in the Hong Kong derivatives market
Source Derivatives Market Transaction Survey
2003/2004, HKEx
10Institutional Investor Profile - Overall
Trading value of institutional investors in the
stock market continued to rise over the years
Source Cash Market Transaction Survey
2003/2004, HKEx
11Institutional Investor Profile - Overall
Trading volume of institutional investors in the
derivatives market also increased over the years.
Source Derivatives Market Transaction Survey
2003/2004, HKEx
12Institutional Investor Profile - Overall
- Key players of the Hong Kong securities market
- Key players of the Hong Kong derivatives market
- Trading activities continued to expand over the
years
13Local Institutional Investor Profile
Local institutional investors contributed 23 and
10 of trading in cash and derivatives markets
14Local Institutional Investor Profile
15Local Institutional Investor Profile
Source Derivatives Market Transaction Survey
2003/2004, HKEx
16Local institutional investor profile
Total 1.7 million contracts
17Local institutional investor profile
- Major contribution to capital raised
- Important contributors to cash market turnover
(23) - Smaller contribution to derivatives market
turnover (10) - Local fund managers are happy with the followings
- China potential
- Main Board corporate governance and disclosure
- Listed company regulation
- And they have concerns about GEM Mainland
companies
18Overseas Institutional Investor Profile
Overseas institutional investors contributed 33
and 22 of trading in cash and derivatives markets
19Overseas Institutional Investor Profile
20Overseas Institutional Investor Profile
21Overseas institutional investor profile
Total 3.6 million contracts
22Overseas Institutional Investor Profile
Institutional investors mostly come from Europe,
UK and US
Source Cash and Derivatives Market Transaction
Surveys 2003/2004, HKEx
23Overseas institutional investor profile
- Major contribution to cash market turnover (33)
- Major contribution to derivatives market turnover
(22) - Major contribution to equity capital raised
- Overseas institutions contribute more trading
value than local institutions in both the Hong
Kong cash and derivatives markets - However their investment decisions, particularly
in IPO subscription, are often influenced by
local institutions. This is especially true for
those overseas institutions with Hong Kong
branches. - Overseas institutional orders mainly came from
the US, United Kingdom and the rest of Europe.
24Regulatory/infrastructure developments affecting
institutional investors
- Strengthening corporate governance regime
- Issuer disclosure (website archives)
- Regulation of sponsors and IFAs
- Listing Rules enforcement (dual filing, statutory
backing) - Proposed regulatory regime for accountants
(Independent Investigation Board and Financial
Reporting Review Panel) - Narrowing of trading spreads
- Review of position limits of derivatives products
- Transition to scripless market
- CCASS Fees review
- AMS/3, HKATS and DCASS capacity upgrade
- Introduction of corporate actions database /
electronic voting - Review of risk management regime
- Market network consolidation
Regulation
Trading / Clearing
Fund managers play a crucial role in the pursuit
of a quality market. In particular, your role in
enhancing issuer quality via scrutiny and
corporate voting.
25Business developments affecting institutional
investors
- Strengthen HKEx business presence via our offices
in Beijing, Guangdong and Shanghai - Attract listings of Mainland enterprises and
HK/overseas companies with Mainland business
operations - Support the continuous liberalisation of the
Mainland investment market - H shares index futures and options
- A50 China Tracker (listed on 18 Nov 2004)
- Callable Bull and Bear Certificates
- FTSE / Xinhua China 25 futures and options
China
New products
China dimension remains the focal point of
business development in the Hong Kong securities
and derivatives market.
26China dimension
- No discussion on HKEx and its marketplaces will
be complete without a review of its China
dimension. - HKEx currently facilitates capital formation in
Mainland China and provides local and global
investors with a fair, secure, efficient and
transparent access to invest in quality China
enterprises. - We look forward to the opportunities in the
future to service the many investors, retail and
institutions, in the Mainland.
27China dimension
28China dimension
29China dimension
30China dimension
The Ten largest IPOs of Hong Kong
Since 1993 Since 1993 Funds Raised at IPO (HKmil) Market Capitalisation (HKmil)
1 China Unicom Ltd 22/6/2000 43,607.70 77,262.43
2 China Mobile (Hong Kong) Ltd (formerly China Telecom (HK) Ltd) 23/10/1997 32,665.05 518,392.32
3 China Life Insurance Co Ltd - H Shares 18/12/2003 26,713.82 38,694.11
4 China Petroleum Chemical Corporation - H Shares 19/10/2000 26,680.98 53,697.56
5 PetroChina Co Ltd - H Shares 7/4/2000 22,329.67 72,967.03
6 BOC Hong Kong (Holdings) Ltd 25/7/2002 20,516.42 157,005.79
7 Ping An Insurance (Group) Co of China Ltd 24/6/2004 14,336.92 33,774.10
8 Semiconductor Manufacturing International Corporation 18/3/2004 13,857.58 30,816.51
9 China Telecom Corporation Ltd - H Shares 15/11/2002 11,800.29 39,550.62
10 CNOOC Ltd 28/2/2001 11,046.71 171,393.67
31China dimension
- China related companies (including H shares, red
chips and Non-H share Mainland private
enterprises) are increasingly attracted to seek
listing on HKExs Main Board and GEM. They now
represent - 28 of total number of listed companies (as at
31 Jan 2005) - 30 of market capitalisation (as at 31 Jan 2005)
- 32.1 of total equity funds raised for 2004
- 79 of IPO funds raised for 2004
- 42 of total turnover value for 2004
- More importantly, trading activities of these
China related companies stay with Hong Kong.
Hong Kong has an average of 80 and 99 of market
share in the trading of China stocks dually
listed in US and London respectively.
32China dimension
Key market statistics of Hong Kong, Shanghai and
Shenzhen
As at end of December 2004 Hong Kong Shanghai Shenzhen
Number of listed companies 1,096 882 578
Total market capitalisation (HKBil) 6,696 690 406
Total equity turnover for 2004 (HKBil) 3,423 2,488 1,491
Average P/E ratio (times) 18.69 24.32 24.63
Source Websites of HKEx, SZSE and SSE HKEx
figure covers both Mainboard and GEM. The
figures for Shanghai and Shenzhen refer to total
negotiable capitalisation of both A and B share
markets P/E ratio HKEx - main board,
Shanghai and Shenzhen - A share market
Exchange rate (31 Dec 2004) RMB1 HK1.0658
33Mainland institutional investor profile
China dimension
Mainland institutional investor profile
34China dimension
Mainland institutional investor profile
- Major institutional investor types
- securities investment funds
- securities firms (proprietary trading and asset
management) - insurance companies
- trust and investment companies
- privately-offered funds
- Qualified Foreign Institutional Investors (QFII)
- National Social Security Fund (NSSF)
- Others (e.g. enterprise pension funds)
- Different institutional investors are under the
jurisdiction of different regulators and
regulatory regimes. - Estimated aggregate investment in the Mainlands
tradable stocks and government bonds exceeds
HK500 billion, around one-third of total market
value. - Investment channels and vehicles still subject to
quotas and other restrictions
35China dimension
- Recent developments of Mainland institutional
investors - Market entry of QFII (mid 2003)
- Qualified insurance companies allowed to apply
certain portion of their foreign exchange balance
in overseas investment assets (Aug 2004) - Insurance companies allowed to directly invest in
the domestic stock market (Oct 2004) - Regulatory regime governing enterprise pension
funds investment established (Feb 2005) - Qualified Domestic Institutional Investor (QDII)
(for overseas investment by domestic investment
funds) under study - Overseas investment channel for NSSF under study
36