Diversifying Hong Kong's Financial Markets

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Citi launches forex margin platform in Asia

HONG KONG, Sept 9 (Reuters) - Citibank aims to tap increasingly active forex margin traders in Asia with a trading platform it launched in Hong Kong on Tuesday and plans to extend it to Singapore and Japan in the next few months.

Foreign exchange margin trading is growing globally by more than 25 percent a year, with daily turnover estimated at about US$100 billion and the Asia-Pacific region accounting for 40 percent of trade, says Citibank.

Its platform, which was launched in the United States in March, is aimed at money managers, hedge funds and individual traders.

"We're focusing towards the high end of this market," Alex Knight, Citi's Asia manager of forex margin trading, told a news conference. "We're not trying to create traders but aim to capture active traders of currencies or active traders looking to diversify into currencies."

The platform provides spot trading for more than 140 currency pairs from 23 underlying currencies and is leveraged at 50 times, enabling a trader who puts down US$10,000 for example to take a US$500,000 position. Citi said there is no commission charge.

Hong Kong is the world's sixth-largest centre for the world's foreign exchange market, which now generates daily trade of US$3.2 trillion, according to the Bank for International Settlements.

Citibank plans to launch its product in Europe in the first half of next year and is considering taking it to India and China.

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Gold futures relaunch gets off to slow but steady start
Uncertain economic outlook expected to bolster trading
21 October 2008
South China Morning Post

Hong Kong Exchanges and Clearing relaunched gold futures yesterday with 480 contracts changing hands, which analysts said was modest but acceptable as a fresh start.

The move comes as the global financial crisis deepens and commodities prices continue to decline.

Traders expected trading in gold futures to be thin in the early stages and dominated by institutional investors.

"We are pleased with the smooth roll-out of gold futures contracts, which expand the HKEx's derivatives market product range amid growing investor interest in exchange-traded gold products," said HKEx chief executive Paul Chow Man-yiu.

Gold for October delivery, the most-traded future, had turnover of 233 contracts. It closed at US$803.50 an ounce. Each contract represents 100 ounces and is denominated in US dollars.

Turnover of November gold was 90 contracts. The future closed at US$805.50. December gold, which saw a turnover of 157 contracts, closed at US$806.50.

"Trading was moderate and acceptable for the first day, as every new product needs time to develop," said Horace Kwan Pak-leung, a deputy chief operating officer of Celestial Commodities, a gold futures liquidity provider.

Gold futures were first introduced on the Hong Kong exchange in 1980, but trading was suspended in 1998 because of thin turnover after investors shifted to over-the-counter channels such as banks and brokerages.

HKEx chairman Ronald Arculli said this was an ideal time to launch gold futures trading in Hong Kong again because of interest in the precious metal and increasing price volatility.

The annualised 30-day volatility of gold has jumped to 50 per cent in August from 10 per cent in August 2007.

Trading in gold futures would enable investors to hedge against unexpected moves in the international market, Mr Arculli said at the launch ceremony.

Gold, often considered a safe-haven investment in uncertain economic times, has almost doubled in price in the past five years.

The metal dropped about 9 per cent last week and hit a one-week low of US$771.30 an ounce yesterday as a rally in the US dollar tarnished some of the metal's attraction as an alternative investment.

Hong Kong gold closed yesterday at US$802-US$803 an ounce, down from US$810-US$811 on Friday. Gold peaked at US$1,030.80 in March.

The relaunch of gold futures underscored the exchange's ambition to expand its range of products and services in commodities and to develop Hong Kong as a hub for gold trading.

"The contracts broaden the HKEx's derivative market product range in the commodities arena. It also complements trading in the cash market, where we have five gold derivative warrants and one gold exchange-traded fund," Mr Arculli said.

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Gold futures may yet assure HK's hub status
21 October 2008
South China Morning Post

The return of a gold futures market to Hong Kong yesterday opens a new chapter in the city's colourful history of bullion trading. The timing itself was diverting, given that gold is a safe haven in troubled times. Conceived in the calm before the approaching financial storm, the futures market has arrived right in the middle of it.

That is a contrast with a decade ago, when gold futures trading on the old futures exchange - now merged into Hong Kong Exchanges and Clearing - was suspended after 18 years because of low interest. It had become uncompetitive with other exchanges, and investors preferred to trade through banks and bullion trading firms.

Its return also coincides with a changeover to an electronic trading system by the Chinese Gold and Silver Exchange Society, which supplies the local jewellery trade, after 98 years of trading by open outcry. An official at the gold exchange has not ruled out an eventual merger between the two bourses as a result of increased co-operation.

The city where a free market in gold thrived from 1949 to 1970 during a trading ban by the International Monetary Fund is now unrecognisable. At that time, Hong Kong's market in the metal catered to demand from the mainland and later Macau, which was not subject to IMF restrictions, as well as to the city's Chinese banks. Unfortunately, gold smugglers took advantage of the situation to use the city as a base to also ship narcotics, leaving a stain on Hong Kong's reputation that took time to shed.

Time will tell if trading in gold futures will take off now. The price of gold is well off recent highs, but price surges have attracted investors, and electronic trading on the exchange may be expected to increase turnover.

At a time when the value of paper money looks increasingly ephemeral, the allure of gold has endured.

Yet, despite its long history of gold trading, Hong Kong's status as an international gold trading hub is by no means assured.

It is to be hoped that the launch of gold futures will help fend off competition for that position from regional rivals.

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INTERVIEW-HKMerc exchange investors stall for time amid crisis

SINGAPORE, Oct 20 (Reuters) - Companies seeking to be members or invest in the Hong Kong Mercantile Exchange (HKMEx) have asked for more time as they grapple with the financial crisis but have not withdrawn from the plan, a top HKMEx official said on Monday.

The commodities exchange's first contract, for fuel oil, is being finetuned while it seeks alternative delivery points, said president Thomas J. McMahon, after a Chinese directive appeared to ban the use of delivery terminals by foreign exchanges on mainland China.

Despite the slowdown, the contract remains on target to launch in March 2009, he told Reuters ahead of the annual Asia-Pacific Petroleum Conference (APPEC).

"We have the same number of signed partners (as before the crisis), but some people have asked for a few more weeks, others for a few months," McMahon said. "Some companies do not know what is going to happen. This is a life-changing event."

When the HKMEx was announced in June, it flaunted a list of potential investors and members that included investments banks such as now-bankrupt Lehman Brothers, and Merrill Lynch, which has since agreed to merge with Bank of America, as well as Barclays Capital .

Others included brokerages Cantor Fitzgerald and MF Global, and diversified commodities trading form Noble Group .

But Reliance Money, a unit of India's Reliance Capital , said last week it bought a 15 percent stake in HKMEx.

McMahon, a former board member of the New York Mercantile Exchange (NYMEX), and a veteran energy trader, says the crisis engulfing global economies would enhance the need for exchanges.

"Do people need to buy a house? No, even though they need a place to live in. But do they need to eat? Yes. They need commodities and they need to price them, whether the price of oil is at $150 or at $73 a barrel," he said.

The industry has been very wary of the new contract so far, after several fuel oil contracts failed in Asia, and as they see the focus moving from 180-centistoke fuel oil -- which the HKMEx is looking at -- to 380 centistoke that is mainly used in the marine fuel market.

McMahon said the credit crisis may act as a springboard for the fuel oil contract, as the deregulated oil industry in Singapore flees over-the-counter (OTC) deals for the safety of regulated exchanges.

Some oil derivative trades have carried on with the aid of clearing exchanges such as NYMEX's Clearport, which assumes the credit risk on behalf of both counterparties, but a lot of trade has evaporated as the crisis shakes confidence.

UPHILL BATTLE

But while existing exchanges and clearing houses such as Clearport may attract more trading, the proposed HKMEx contract faces hurdles to gain the market's favour.

The China Securities Regulatory Commission (CSRC) posted a directive in July asking domestic exchanges to closely watch deliveries at terminals, and banning foreign exchanges from using mainland warehouses for contract-related deliveries until new regulation is passed, according to news reports.

Although McMahon denied the directive could put the contract at risk as he sees bonded storage as outside of the CSRC's jurisdiction, he added the exchange was looking at alternative delivery points, in Hong Kong and Macao, for instance.

"We want to give the industry the opportunity to receive delivery at different points," he said.

The HKMEx was formed with the support of Titan Petrochemicals , which has bonded storage in China, and this summer's directive was seen by many as a blow.

"All regulators try to protect their market. You have to respect the regulators where they stand and we are not going into conflict with them," he said. McMahon said Titan has taken a step back after helping form the exchange and would be a shareholder as any other.

He declined to comment on other potential shareholders, such as China's energy giants Sinopec Corp and PetroChina , which are seen as crucial to the success of the venture, but said interest was there.

"We have a good response from mainland China."

An agreement has also yet to be finalised with LCH.Clearnet, which is to act as clearing house for the exchange.

"Technically, we have not finalised (the deal) but in terms of our clock and the work we have done, we are quite down the road," he added.

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Islamic finance will only be a niche business for HK
27 November 2008
South China Morning Post

There was a full house on Tuesday for Euromoney's first Hong Kong Islamic Finance Forum. So packed was the Conrad hotel's ballroom that a couple of dozen latecomers were forced to stand at the back of the hall.

But judging from the glazed looks and the amount of BlackBerry fiddling that went on during the keynote speeches, the high attendance level reflected the dearth of activity in Hong Kong's capital markets, rather than any real belief in the city's future as a centre of Islamic finance.

Official enthusiasm remains undimmed, however. After Chief Executive Donald Tsang Yam-kuen vowed to "push ahead with the development of an Islamic bond market" in his policy address last month, Hong Kong's regulators and government-linked companies lined up on Tuesday to lend their support to the plan.

"There should be no doubt about our determination to establish an Islamic finance platform," declared Hong Kong Monetary Authority deputy chief executive Eddie Yue Wai-man, adding that the HKMA is devoting "considerable resources" to promoting the business.

Like Mr Tsang, Mr Yue thinks Islamic finance is a big and growing cake and has concluded that Hong Kong should grab itself a slice.

Yesterday, he brushed off the impact of the economic crisis on the market, claiming the sector holds assets worth US$1 trillion and is growing at an annual rate of between 15 and 20 per cent.

And although he said issuance of Islamic bonds had dropped by 40 per cent in the first nine months of the year compared with the same period of 2007, he dismissed the decline as a "temporary setback".

Mr Yue's numbers are suspect. His estimate of US$1 trillion in Islamic assets looks decidedly generous. In a policy paper published earlier this year, International Monetary Fund researchers put the figure at US$800 billion.

Moreover, the vast majority of those assets consist of loans made by Islamic banks, shares owned by Islam-compliant mutual funds and investments held by Islamic insurance schemes.

The Islamic bond segment that Mr Tsang and Mr Yue are eyeing so greedily is worth only around US$70 billion in terms of issues outstanding.

But even the US$70 billion figure exaggerates the size of the market. Most of that amount consists of local currency-denominated debt issued into domestic markets like Malaysia and the United Arab Emirates, much of it for short-term liquidity management.

The portion that interests Hong Kong, internationally issued US-dollar-denominated Islamic bonds, is worth a bare US$16 billion in terms of issues outstanding, according to data from Thomson Reuters and the Bahrain-based Liquidity Management Centre.

Mr Yue's assertion that the damage inflicted on the Islamic debt market by the financial crisis is limited also looks dubious. According to Thomson Reuters, total Islamic bond issuance in all currencies in all markets has fallen 54 per cent this year compared with 2007.

US-dollar bond issuance, however, has plunged by 82 per cent. So far in 2008, the market has managed to raise just US$1.9 billion from three issues, all in the first half of the year. That compares with US$10.3 billion from 19 issues in 2007 (see the charts below).

Nor does it follow that the market will recover and resume its former growth rates any time soon. With the oil price down 65 per cent from its summer highs, the Gulf states - source of much of the Islamic capital the government is targeting - are struggling to meet their spending commitments. Suddenly extra cash is scarce.

So although the Hong Kong government is right to level the tax playing field for Islamic investment products, and although Hong Kong may have a future role to play in introducing Islamic investors to capital-hungry Chinese companies, Islamic finance is never likely to be more than a niche market for the bankers who crammed into the Conrad ballroom on Tuesday in order to appear busy on a slack day for real business.

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Hong Kong exchange to launch gold futures

LONDON, June 1 (Reuters) - The Hong Kong Mercantile Exchange (HKMEx) plans to launch with a gold futures contract in the fourth quarter 2009, its president said on Monday.

"We are trying to open it with gold in the fourth quarter," Albert Helmig, the president of HKMEx told the Reuters global energy summit.

"We are launching energy contracts in 2010, not necessarily fuel oil, but feedstocks and petroleum products," he said.

"It is our intention to expand over the energy basket in 2010."

Last year, the exchange had said it would launch fuel oil futures in March this year.

But this was delayed due to complications related to physical delivery in China, Helmig said, referring to "very unique issues that are hard to execute."

Gold futures contracts normally take no physical deliveries but cash settlements. He also said Hong Kong would provide the exchange with geographical advantage for gold futures.

"Hong Kong always was a traditional gold centre," he said.

Gold is traded in many exchanges in the world including key markets in New York and Tokyo.

Helmig, the former vice chairman of the New York Mercantile Exchange, also said Hong Kong had an advantage over mainland China as it would attract domestic and international participants.

It would have bridging functions between trading the time lag between New York and London.

ENERGY CONTRACTS

Helmig said the potential energy contracts to be launched next year on the HKMEx would include the crack spreads, or oil products' relative value to benchmark crude oil, which can be used as a hedging tool for margins, or profit levels of oil refiners.

There is a gap in service for crack spread hedging in Asia. New refiners are coming on-stream, including Reliance Industry's Jamnagar in India, he said.

"Asia crack might be more functional than taking hedging positions in Europe or the States," he said.

The Jamnagar refinery will become the world's largest when it comes fully on-stream later this year.

Helmig said there was still demand for such contracts despite the global financial crisis, which started in September last year and has since constrained flow of money.

"It is always good timing to launch an exchange as long as customer demand is there," he said.

When the HKMEx was announced in June last year, names of its potential investors and members included investments banks such as now-bankrupt Lehman Brothers.

Helmig declined to disclose details about members and shareholders except for Reliance Money, a unit of India's Reliance Capital , which last year announced it had bought a 15 percent stake in HKMEx.

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LCh.Clearnet Agrees Initial Terms For Clearing Hong Kong Mkt
10 June 2009

LONDON (Dow Jones)--LCH.Clearnet, the European clearing house, said Wednesday it has agreed "initial terms" to provide clearing services to the Hong Kong Mercantile Exchange.

The clearing company said it would use existing technology to provide clearing for HKMEx which offers U.S. dollar-based trading in commodities markets across Asia.

LCH.Clearnet, better known for clearing financial futures on London futures market Liffe, already has experience cllearing commodities, having provided services to the London Metal Exchange for many years.

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Gold exchange seeks clear government policy
The Standard
Monday, July 13, 2009

The Chinese Gold and Silver Exchange Society called for clearer rules on gold futures products to avoid resources redundancy as it faces competition from Hong Kong Exchanges and Clearing (0388) and Hong Kong Mercantile Exchange.

President William Lee Tak-lun said the government can formulate a clear policy for the development of the Gold and Silver Exchange Society to avoid the resources repetition in Hong Kong. Gold futures trading is key if the government is hoping to develop the local commodity futures market, he told Sing Tao Daily, The Standard's sister publication.

HKEx has already started trading gold futures and the HKMEx has expressed interest in following suit.

Lee said the government has a closer relationship with HKEx and HKMEx, while its relationship with the society is "not that close." A spokesman from the Financial Services and the Treasury Bureau said the government is in favor of a "diversified" gold market.

The society launched an e-trading platform last April. Initially, trading was slow.

But from June, daily turnover has surged, exceeding 1.2 million ounces - more than 20 times its earlier days.

Last Wednesday, daily volumes hit a record 1.78 million ounces.

Given the higher level of transparency, many trades that used to take place out of the society, are now flowing into the e-trading platform, according to Lee.

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Fund house targets ETF bonanza
13 July 2009
The Standard

Demand for exchange-traded funds is expected to rise as investors target either high-return or low-fee funds, market participants said.

One firm that has its eyes on the ETF market is Value Partners (0806), the local fund house which last week launched its first value-based index _ the FTSE Value-Stocks China Index.

Chairman Cheah Cheng Hye told The Standard he hopes ETFs could create a new income stream for the firm in the future.

``We definitely want to tap the ETF market and more indexes will be launched in the future.''

Deputy chief executive and executive director Eugene Law said Value Partners has attracted a lot of interest and has received inquiries of a possible licensing of the newly launched index for ETF products.

However, it has not launched any related products at this stage, Law said. Market sources said Value Partners will not be the only one aiming for a slice of the ETF market because it is widely understood that the Securities and Futures Commission and Hong Kong Exchanges and Clearing (0388) have made launching more ETFs in the local market a top priority.

ETF approvals have been speeded up in the past couple of weeks, sources familiar with the situation said.

``The SFC stopped approving investment products for almost six months and only resumed the activity in the past two weeks,'' one source said.

``With the government keen to make Hong Kong an ETF hub, it has become faster to get approval.''

Jamie Perrett, head of quantitative research of Asia Pacific at FTSE _ a manager of Value Partner's new index _ said regional bourses are eager to grab a share of the ETF market and hope business in this area will grow.

``In mature markets such as the United States, three of the top heavily traded stocks are ETFs,'' he said.

Cheah said previously only two ETFs _ the Tracker Fund (2800) and FTSE- Xinhua A50 (2823) _ dominated the local market. But if more quality indexes are launched the market could be even more prosperous.

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HKEx to delay launch of carbon trading to Q2 2010

HONG KONG, July 17 (Reuters) - Hong Kong Exchanges & Clearing may delay the launch of it carbon emission trading products to the second quarter of 2010 from the second half of 2009, its head of derivatives trading said on Friday.

"If we learn from consultations that there is a market for emissions trading we need another nine months from now before we can launch," said Calvin Tai, head of derivative markets with the HKEx.

HKEx began market consultations on its proposal to launch emissions trading in June.

HKEX is buying time to educate market participants and assess the pace of development of carbon trading globally.

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Tang sees mutual trading of ETFs for Hong Kong, Shenzhen
The Standard
Monday, July 20, 2009

Hong Kong investors will soon be able to trade the exchange-traded funds issued in the mainland market.

Chief Secretary for Administration Henry Tang Ying-yen said mutual trading of ETFs could well form part of the first cooperation pact between Hong Kong and Shenzhen, and that this could subsequently be extended to stocks trading.

Currently, mainland investors are allowed to trade in Hong Kong, but not the other way around.

Another financial product being looked at is the Octopus Card. According to a source, the SAR and Shenzhen governments are studying the use of the card in Shenzhen first and, if successful, it could be extended to nine other mainland cities.

Tang also suggested the multiple- visit visas, currently available only to Shenzhen residents, be extended to include all Guangdong residents.

"Among the 15 million individual mainland travelers arriving in Hong Kong last year, 80 percent were from Guangdong, so why can't we extend the multiple visits to them?" he asked.

In fact, Tang hoped all migrant workers in Shenzhen and other Guangdong cities would be allowed to join the individual traveler scheme. Earlier this year, the central government suggested migrant workers in Shenzhen may be allowed to join the individual scheme, but the idea was later put on hold for security reasons.

In addition to the financial and tourism sectors, Tang said the trading, logistics and creative and wholesale industries in Hong Kong would have an edge should they wish to tap the mainland market. "Trading instead of finance, I would say, is the most successful industry in Hong Kong," Tang said. "It contributes the most to our GDP, and employs the largest number of people. The creative industry is also important and which, I believe, will be able to contribute more than 10 percent of our GDP in the future."

Despite these advantages, he would not speculate on whether Hong Kong would eventually become the most dominant center in the region. "Hong Kong will forever be Hong Kong. It will not be Manhattan, or London or Paris," he said.

Tang said there was no fear of Hong Kong's position as a world financial center being threatened anytime in the future. He said China is - or will soon be - the second largest economy in the world, and there is no reason why it should not be able to sustain more than one financial center. He said it is only a matter of time before the yuan becomes freely convertible, after which it could become the reserve currency for many countries. "Just like the US, which has financial centers in New York, Chicago and Los Angeles, cities like Shanghai, Beijing, Tianjin, Shenzhen, Guangzhou, and Hong Kong will be able to provide financial services for China," Tang said.

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'You're just a pawn'

Bonnie Chen

Thursday, July 30, 2009

Hong Kong must give way to Shanghai in the nation's financial development, according to a top Beijing official, who sees the SAR role as being reduced to that of a "pawn."

Xia Bin, head of the Financial Research Institute, which comes under the State Council's Development Research Center, also said there may be a change in the role of the Hong Kong dollar by 2020.

"Shanghai's financial market must eventually surpass that of Hong Kong's," Xia told the China Economic Times.

He described the years leading up to 2020 as a "strategic transitional period," when Hong Kong may serve as a "bridgehead" and a "buffer zone." Its main responsibility will be taking care of the yuan offshore market.

Meanwhile, Shanghai will focus on the overall financial market and also have a role in the US dollar and yuan offshore markets.

"Hong Kong will play second fiddle - a pawn - in the overall national financial development," said Xia, though "we will also explore ways to make the city further prosper and to upgrade and transform."

By 2020, according to Xia, the mainland economy will match that of the United States, especially in terms of purchasing power.

"The world's biggest yuan financial center will be in Shanghai," he predicted, and it would stand with New York and London as the top three financial centers in the world.

After 2020, Hong Kong's yuan financial market will be attached to Shanghai and the status of the Hong Kong dollar may have changed. "Both Hong Kong and Shanghai can be international financial centers but will have different roles."

He also said Hong Kong should realize the advantages it receives under "one country, two systems," but its development should be in line with national strategy.

For Hong Kong and Shanghai to play their roles effectively, he added, a unified set of rules needs to be set for both cities to follow.

"For significant issues, we cannot give too much independent legislative power to the municipal governments," he declared.

Executive Council convener Leung Chun-ying, who is also a member of the Chinese People's Political Consultative Conference Standing Committee, said the SAR has to accept its limitations with regard to its land area and talent.

"Hong Kong is only one-tenth of New York and London," Leung said.

So the SAR should explore avenues beyond its financial potential.

Source: http://www.thestandard.com.hk/news_d...=20090730&fc=7

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Gold and silver start for mercantile exchange
The Standard
Tuesday, June 23, 2009

The Hong Kong Mercantile Exchange has decided on gold and silver futures as its debut products instead of oil futures as first planned because the market landscape has changed.

HKMEx also revealed a series of appointments, including former stock exchange director and founder of the Civic Exchange think-tank Christine Loh Kung- wai, as an independent non-executive director.

After studying the markets for a year, HKMEx expects to launch both gold and silver futures in the fourth quarter, chairman Barry Cheung Chun-yuen said. "Whether we will launch fuel oil futures later depends on the market situation," he added. HKMEx was still applying for a bourse operating license from the Securities and Futures Commission, Cheung said.

It also awaiting SFC licenses to trade futures in gold and silver.

Gold futures will trade in US dollar-denominated and kilobar units, Cheung said. Trading hours will be longer than those of Hong Kong Exchanges and Clearing (0388) and physical delivery of the metals is possible. HKMEx has signed an agreement with the Airport Authority to use its gold warehouse for storage. The metal exchange said Christine Loh was one of seven newcomers to its 17-member board.

The others include economist Fang Gang, a member of the Monetary Policy Committee of the People's Bank of China; Dominic Ho Chiu-fai, former co-chairman of KPMG; Shenzhen Development Bank supervision board chairman Kong Dian and MTRC chairman Raymond Ch'ien Kuo-fung.

Cheung declined to name the other board members or the HKMEX shareholders' structure, describing the matters as sensitive information.

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Cross-border listings may include CBBCs
20 August 2009
The Standard

The cross-border listing agreement could later be extended to include derivative warrants and callable bull-bear contracts, according to Paul Chow Man-yiu, chief executive of Hong Kong Exchanges and Clearing (0388).

Chow also said yesterday that consultations on allowing Chinese firms to use mainland-audited financial reports officially will begin in two to three weeks, with the new standard being implemented as early as January.

He clarified that HKEx will accept any country that adopts the international accounting standard.

``China has since 2007 adjusted its accounting standard according to new international requirements, so it fits in our regulations,'' Chow added, after attending the first listing in Hong Kong of a Taiwanese exchange-traded fund.

The Polaris Taiwan Top 50 Tracker Fund (3002) opened at HK$10.50, slightly above the offer price of HK$10, but fell in reaction to the drop in the stock market. Polaris closed at HK$9.86 on low turnover.

Chow said Taiwan will hold the second seminar on cross-border listing in December, and topics will include warrants and CBBC products.

Rules would become more unified among the four exchanges in the Greater China region, he said, paving the way for derivative products to list on all bourses.

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Finance sector doubles in a decade
Of city's four 'pillars', only financial services' share of GDP is up much
8 August 2009
South China Morning Post

Hong Kong's development as a financial services centre has been underlined by data that shows the sector's contribution to the economy has doubled in barely a decade.

The financial services industry now accounts for about a fifth of gross domestic product, and economists say this could rise to 40 per cent.

But its rise has had little impact on jobs growth, with its share of the workforce hovering at little more than 5 per cent since the handover.

Financial services is the only one of the four so-called "pillar" industries to have increased its share of GDP significantly, with the other three remaining flat, an analysis of economic data since 1996 shows.

Tourism remains the smallest contributor, at 3.4 per cent, and has grown by just 0.3 percentage points over the years even though the government has spent an estimated HK$40 billion on overseas promotions and attractions such as Hong Kong Disneyland.

The trade and logistics industry was the biggest contributor, at 25.8 per cent, followed by professional services, including legal and accounting services, at 11 per cent.

Financial services, which accounted for 10.3 per cent of the economy in 1996, accounted for almost 20 per cent in 2007, the most recent year for which complete figures are available. The sector will continue to grow," Francis Lui Ting-ming, professor of economics at the Hong Kong University of Science and Technology, said. "It's because China has a strong demand for financial services and yet this is one of its least developed areas."

He is not worried Hong Kong will be over-reliant on the financial industry if it continues to expand, as long as there is room for it to develop further. "I don't think we need to worry if the industry's share of GDP rises to 30 per cent to 40 per cent," he said.

However, Hang Seng Bank senior economist Irina Fan Yuen-yee said developing the industry further would not create many more jobs as it employed only 5.2 per cent to 5.5 per cent of the workforce from 1997 to 2007. She also said the sector needed to diversify. "Hong Kong has been the fund-raising centre for mainland companies which seek initial public offerings here. But as their equity markets develop, companies may choose to get listed in the mainland instead."

She said Hong Kong could also face competition from Southeast Asia and from Shanghai - as it develops renminbi-denominated financial business - and should move into areas such as fund management.

A government spokesman said the fast-growing mainland economy was "no doubt a big plus point" for Hong Kong as an international financial centre. But Professor Lui said it was "a long path" to expanding yuan deposits to an adequate level - about 6 trillion yuan (HK$6.81 trillion) was required but the sector now involved only about 53.4 billion yuan. "So the government should speed up its lobbying with the mainland to liberalise capital controls," he said. "Relatively, Shanghai doesn't have much of a problem."

According to the Global Financial Centres Index released by the City of London in March, Hong Kong is the fourth most competitive financial centre in the world, after London, New York and Singapore.

In the competition for the tourist dollar, the city pumped billions into developing a Disney theme park, building the Nong Ping 360 cableway and building convention and exhibition facilities. Overseas and mainland promotions have cost the Hong Kong Tourism Board about HK$300 million a year. But despite policy changes that have brought a surge in mainland visitors, inbound tourism's contribution to the economy grew by just one tenth of one percentage point in the period, to 2.6 per cent. There was a spike in growth in 2004, the first year millions of mainland tourists were allowed in as individual travellers, but growth has slackened since even though the mainland has eased travel curbs further.

Another economist said no significant growth was possible without more hotels. "The number of tourists is restricted by the number of hotels that we have and the number of hotels is restricted by land supply," Terence Chong Tai-leung, associate professor of economics at Chinese University, said. "So no matter how much we invest in the industry, the room for increase in the number of tourists is limited."

The lack of hotel rooms is not all down to land availability - lack of developer interest also plays a part.

The government has made hotel-specific sites available since March last year. But no developer has bid for the sites, which are in North Point, Wan Chai, Central, Hung Hom, Kowloon Bay, Kwun Tong, Tsuen Wan, Sai Kung and Tin Shui Wai.

Government data show that the hotel industry contributed about 0.8 percentage points to GDP in 2007, down from 1 per cent in 1996, even though the number of hotel rooms rose from about 35,000 to 51,000.

Haiyan Song, professor of tourism at Polytechnic University, said Hong Kong's over-reliance on mainland tourists was a reality it had to face.

"Tourists from the mainland spent much more than tourists from many other developed markets, and the contribution of mainland visitors should not be ignored," he said. "The number of tourists from mainland China is forecast to increase in the next five to 10 years."

A government spokesman said tourism's role in the economy was comparable to that in other major markets, such as Canada, where in 2007 it made up 2 per cent of GDP, and the UK (2.7 per cent). That year the industry employed more than 190,000 people, or 5.6 per cent of the workforce, he said.

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Flood of liquidity drives big response to SAR bond sale
3 September 2009
The Standard

Hong Kong's first government bond sale in five years has received an overwhelming response as ample liquidity and a low rate environment have driven money to sovereign bonds as a safe haven.

The HK$3.5 billion in two-year government bonds _ which went up for auction yesterday _ have attracted orders up to 6.45 times, or HK$22.575 billion worth of subscription.

However, the average yield was at 0.59 percent, much lower than the market expected, according to information from the Hong Kong Monetary Authority.

Financial Secretary John Tsang Chun-wah said the auction result reflects strong demand for public debt instruments and would help Hong Kong to further strengthen its position as an international financial center.

Market participants said financial institutions are flooded with liquidity and are seeking safe places to invest. Well- graded sovereign bonds that have ratings parallel to the exchange fund notes have become the favored choice in recent days.

The average yield of the first batch of government bonds was only 4.8 basis points higher than the exchange fund notes which yesterday closed at 0.542 percent. This strayed from the 1.21 percent two-year interest rate swap yield.

The low yield fixed yesterday reflects that Hong Kong banking system is flooding with liquidity and ``financial institutions and end investors as a whole believe the rate will stay low,'' said Clement Ho, director and chief investment officer at Hang Seng Investment. ``Financial institutions, after the Lehman saga, have tightened their requirements on credit standards,'' he said.

Tommy Huang, DBS Hong Kong senior vice president of treasury and markets, said: ``The recent fall of the stock markets, which dragged treasury yields down by 14 basis points in a week, was one of the reasons the bond yield set below market expectation.''

[Kaitak747]

俄鋁擬年底前來港上市

集資金額料高達230億


【明報專訊】俄羅斯前首富德里帕斯卡（Oleg Deripaska）旗下的全球最大氧化鋁生產商俄鋁聯合（UC Rusal），正準備捲土重來，重啟在本港上市的計劃。英國《星期日泰晤士報》聲稱，俄鋁已準備今年12月前來港上市，保薦人瑞信和高盛將在本周內遞交上市申請。倘若申請落實，俄鋁將是首家在香港掛牌的俄羅斯企業。


報道還指出，俄鋁正與數家主權基金，如中投公司和新加坡淡馬錫控股商討入股事宜，增加股份認授性。由於俄鋁市值高達300億美元，以這次出售10％股份計算，集資金額可能高達30億美元（230億港元），成為全球今年集資額最大的新股之一。


捨倫敦 擇港避前伙伴訴訟


目前，瑞信和高盛已被俄鋁聘用為上市保薦人和包銷商，而俄鋁最大債權人法巴，將聯同中銀國際，成為這次上市活動的包銷商。報道稱，根據俄鋁的計劃，在本周遞交上市申請後，正式投資推介工作會於今年11月進行，之後會在12月進行定價及上市。


俄鋁去年曾計劃在港上市，但期間遇到金融海嘯，加上鋁價狂跌，結果上市計劃夭折。俄鋁計劃在本港而非倫敦上市，據報部分原因是德氏的前生意伙伴查尼（Michael Cherney），正向他索償總值逾40億美元的股份。查尼去年入稟倫敦法院，指他應擁有俄鋁20％股權，但德氏一直否認與查尼有任何業務關係，又指查尼沒有任何俄鋁股權，雙方訴訟至今沒完沒了。另外，俄鋁亦洞悉到中國投資者對礦業股份的需求正與日俱增，遂希望趁市回穩，向中國招手。


須先完成巨額債務重組


不過，俄鋁在港上市亦要克服多重困難。首先，俄鋁必須先完成巨額債務重組談判。《星期日泰晤士報》透露，俄鋁已原則上同意以5％股權，換取160億美元債務延遲4年償還予債權銀行。同時，根據俄鋁在2006年與競爭對手Sual及瑞士商品交易商Glencore旗下鋁業資產3方併購的協議，俄鋁必須於今年12月31日前上市，否則要以市值300億至350億美元的基準，購入上述兩家公司股份。在金融海嘯下，德氏身家大幅縮水，若不搞上市集資，相信難有足夠財力以高價購入這些股份。


星期日泰晤士報





鋁價大跌 俄前首富身家縮水


【明報專訊】俄鋁來港上市是港府努力開拓新股來源的一次勝利。去年港交所明言要擴大本港集資市場版圖，由以往只是「北望神州」，轉為「放眼世界」，因此積極到新興市場游說企業赴港上市。其中一個重點游說對象便是俄鋁。擁有俄鋁54％的德里帕斯卡，去年成為俄國首富，他去年到港欣賞芭蕾舞表演時更成為「明星」，據報行政長官曾蔭權還邀請他到禮賓府會面。

[Kaitak747]

Tax boon set for Islamic bonds






Secretary for Financial Services & the Treasury Professor KC Chan says the Government is preparing law changes to the tax regime to level the playing field for Islamic bonds with conventional bonds.



Speaking at the Islamic Finance Symposium 2009 in Tokyo today, Prof Chan said Hong Kong, being an international financial centre, will implement a conducive platform for the development of Islamic finance. The sector's huge market potential is shown by double-digit growth in Shariah-compliant assets over the past decade, which has driven Islamic financers to look beyond historical boundaries to explore new territories, both within and outside the Muslim world.



"We believe Hong Kong is well placed to become a centre for Islamic finance in Asia. Our sound financial services infrastructure and well-established legal system make Hong Kong an attractive location for such investments," he said.



Prof Chan said many conventional and reputable financial institutions have entered the market, offering products and asset-management service driven by the accumulation of wealth of both individuals and institutions, particularly in the Gulf and emerging Asia.



The city's unique advantage, he said, is its unrivalled role in bridging the Mainland to the international market. By bridging the investment needs of the Middle East with the capital needs of the Mainland, Hong Kong can be the trusted platform in linking the new Silk Road, he added.



Prof Chan later visited Tokyo Stock Exchange where its President and CEO Atsushi Saito briefed him on the latest developments in Japan's equities market.

[hkskyline]

There is so much liquidity in the markets these days, but the general public needs to be educated with the risk profile of these securities. Retail response in Hong Kong tends to be quite active (of course, the institutionals are big on the market as well).

[hkskyline]

Pact set to foster Islamic finance
The Standard
Friday, October 23, 2009

Hong Kong will sign a memorandum of understanding with Malaysia at the end of the month to pave the way for Islamic financial business, said Secretary for Financial Services and the Treasury Ceajer Chan Ka-keung.

Chan told lawmakers yesterday the administration will step up competition to tap the potential lucrative Islamic market.

"The Islamic financial business is one of the largest markets, and most countries are aiming for a slice," Chan said.

"We will push ahead with plans to revise tax rules on Islamic product sales to ensure a fair trading platform worldwide."

At the same meeting, Chan also dismissed doubts the market has regarding the Hong Kong Mortgage Corp's recent offer of a fixed-rate mortgage plan.

Chan said he did not agree with legislator Regina Ip Lau Suk-yee's comment that the measure contradicted the government's hopes of averting a possible property bubble.

"The HKMC only offers an alternative choice for homebuyers, the new plan is a product to meet market needs," Chan added.

Chan rejected financial-services sector lawmaker Chim Pui-chung's claim that Hong Kong's status as an international financial center is threatened by local lenders charging too many fees.

But the secretary said the government is concerned if fee charges are abused and the Hong Kong Monetary Authority will monitor the situation.

He added that there is no monopoly in the local banking industry and competition is fierce.