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Institutional investors in the Hong Kong securities market

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Overseas institutional investor profile. Regulatory/infrastructure developments affecting institutional investors ... Institutional Investor Profile - Overall ... – PowerPoint PPT presentation

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Title: Institutional investors in the Hong Kong securities market


1
Institutional 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

2
Agenda
  • 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

3
Overview of the Hong Kong securities market
Hong Kong stock market is 16 times its size in
1986
4
Overview of the Hong Kong securities market
Hong Kong was third in equity funds raised in 2004
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
5
Overview 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

6
Overview of the Hong Kong securities market
Hong Kong derivatives market has increased 24
times since 1986
7
Overview 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

8
Institutional 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
9
Institutional Investor Profile - Overall
Institutional investors also actively
participated in the Hong Kong derivatives market
Source Derivatives Market Transaction Survey
2003/2004, HKEx
10
Institutional 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
11
Institutional 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
12
Institutional 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

13
Local Institutional Investor Profile
Local institutional investors contributed 23 and
10 of trading in cash and derivatives markets
14
Local Institutional Investor Profile
15
Local Institutional Investor Profile
Source Derivatives Market Transaction Survey
2003/2004, HKEx
16
Local institutional investor profile
Total 1.7 million contracts
17
Local 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

18
Overseas Institutional Investor Profile
Overseas institutional investors contributed 33
and 22 of trading in cash and derivatives markets
19
Overseas Institutional Investor Profile
20
Overseas Institutional Investor Profile
21
Overseas institutional investor profile
Total 3.6 million contracts
22
Overseas Institutional Investor Profile
Institutional investors mostly come from Europe,
UK and US
Source Cash and Derivatives Market Transaction
Surveys 2003/2004, HKEx
23
Overseas 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.

24
Regulatory/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.
25
Business 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.
26
China 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.

27
China dimension
28
China dimension
29
China dimension
30
China dimension
The Ten largest IPOs of Hong Kong
31
China 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.

32
China dimension
Key market statistics of Hong Kong, Shanghai and
Shenzhen
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
33
Mainland institutional investor profile
China dimension
Mainland institutional investor profile
34
China 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

35
China 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
  • THANK YOU
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