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Good afternoon ladies and gentlemen.
It's a pleasure to be among you at this luncheon today and to share with you some of my thoughts on the outlook for Hong Kong's stock market in the years ahead.
There is no doubt our market has done tremendously well in the past decade and in the last few years in particular, on the back of a strong global economy and mounting interest in the China growth story.
From the end of 1996 to the present, Hong Kong's market cap has risen almost fourfold from about US$450 billion at the end of 1996 to over US$1.8 trillion today. This compares with two- to threefold increases for the exchanges in London and the US.
The listing of Mainland enterprises is a common source of interest among our exchanges. But since the 1980s - well before other exchanges had cast their eyes on the Mainland - the Hong Kong securities market has served as a bridge between China and the rest of the world in terms of capital formation and, today, we have grown to become the leading international stock market for Mainland China-related enterprises.
They currently account for about 30 per cent of the total number of listed companies here, 50 per cent of Hong Kong's total market cap and about 60 per cent of turnover. There is no doubt the listing of Mainland enterprises have helped enhance the depth and breadth of the local market.
However, with the resurgence of the Mainland stock exchanges there has been concern about Hong Kong's financial role in the future.
Indeed, IPO funds raised on the Mainland bourses this year are forecast to surpass those in Hong Kong. So will Hong Kong be eclipsed by the Shanghai or Shenzhen markets, as some have suggested?
I believe thoughts of our demise underestimate Hong Kong's strengths as well as the resilience, resourcefulness and depth of our markets.
Furthermore, perhaps it is useful to remind ourselves that Hong Kong's role in the Mainland's economic development over the past 30 years is far more than as a financial centre. Our entrepreneurs have made significant investments in the Mainland and have made significant contribution and will continue to do so. Even Hong Kong is the largest investor there.
In terms of the Mainland aspect, Hong Kong's markets will continue serving two important functions.
The first is as an international fund-raising platform for enterprises in the Mainland be they Mainland or foreign owned. Since 1993, Mainland enterprises have raised more than US$190 billion in equity capital in Hong Kong.
But apart from international capital, as importantly, local listings have also introduced global expertise to Mainland firms and helped raise their corporate governance, management and accounting standards to international levels.
This, I believe, has helped the transformation of a number of industries and will continue to be of long-term value to China's overall economic competitiveness and capital market development.
And with a sustained high growth rate, there will continue to be significant demand for capital and know-how in the Mainland by its companies - be they private or state-owned, or be they small or large - to grow and compete globally.
Some of these may be interested in seeking international investors. And some international investors may also be interested in participating in the country's growth within a well-regulated and well-established framework. This is where Hong Kong will continue to be the preferred market.
The second important function Hong Kong will remain serving is as an investment centre not only for international investors but Mainland investors as well.
We are well-placed for the growing opportunities arising from China's relaxation of restrictions on investments and capital movements. We have already seen the opening up of channels with the QDII and QFII schemes. We have also seen the establishment in Hong Kong of Mainland asset management operations in Hong Kong. I am sure you appreciate the significance of this development.
Hong Kong offers a broad range of investment tools from those available on our exchange to a wide variety of choices you all are responsible for, including funds from far and wide, offering high to low risk and corresponding returns.
And retail investors have been plowing record amounts into these products recently. We have seen strong and rising investor interest in both our stock and derivatives markets. Our average daily equity turnover has been about US$6-7 billion this year. I understand gross sales of all investment funds in the first month of 2007 also hit a new peak, surpassing US$3 billion for the first time, with US$914 million invested in Greater China equity funds. Your hardwork has resulted in Hong Kong being a leading fund management centre in the region and I do not see any reason why we will not continue enhancing our role in this area.
At HKEx, we do not view the continued development of the Mainland and its exchanges as a threat, but a chance for us all to benefit from the country's continued economic ascendancy.
We hope to complement the Mainland exchanges and partner them in helping Mainland companies attain their full growth potential and realise opportunities for international recognition.
Generally issuers decide where they want their shares listed. Mainland companies have a choice dependent on whether they want to raise renminbi and engage domestic investors, or list in Hong Kong to attract international funds and international investors. Indeed, they can now also do both. Last year, the IPO of the Industrial and Commercial Bank of China or ICBC, made headlines as the world's largest IPO to date with simultaneous offerings in Hong Kong and Shanghai and this month we are poised to see the second such dual listing. I am confident there is room for all China's exchanges to grow together.
At HKEx, our focus is on strengthening our role as China's international exchange - offering a broad product range and access to global investors on a well-established platform of international standards and practices.
On the other hand, we work closely with both Shanghai and Shenzhen exchanges and render whatever assistance they consider helpful in their journey to full development. The American and European experience has shown that you can have international financial centres and exchanges like New York and London and yet have centres like Chicago, Frankfurt and Paris. We believe that there is more than enough room for thriving exchanges in Shanghai, Shenzhen and Hong Kong.
Apart from Mainland listings, we are also seeking to trade more Mainland-related products, particularly Mainland-related derivatives and renmnibi-denominated products. We reckon such products will capture both local and global interest.
Just earlier this week, we introduced the Hang Seng China H-Financials Index (HFI) futures, and we are looking into renminbi futures as well and are consulting regulatory authorities on this proposal.
The announcement by Beijing that Mainland financial institutions will be permitted to issue renminbi-denominated bonds in Hong Kong is another significant development and indicative of the on-going financial integration between Hong Kong and the Mainland. I hope the issuance will occur in the not too distant future and that the bonds will be listed on HKEx.
To prepare for the further opening of the Mainland market, we are also seeking to engage more Mainland-related participants and investors (such as QDII) who wish to participate in the Hong Kong market.
Indeed, the China Banking Regulatory Commission last week said it would expand the scope of the QDII programme this year to more investment products other than bonds to enhance investment returns. And it has been reported that up to half of QDII quotas may be invested in equity funds authorised by the Securities and Futures Commission.
That could mean about US$6.3 billion may be invested in the local fund market, as only about 3 per cent of the US$13 billion in QDII quotas has apparently been invested since the programme was launched in April last year. The move would enable Mainlanders to gain better returns and our markets would also benefit from more fund inflows.
The Central Authorities have confidence in Hong Kong regulations and our markets, and we will continue to work closely with our Mainland counterparts.
Our mission at HKEx is to be a leading international marketplace for securities and derivatives products focused on Hong Kong, Mainland China as well as the rest of Asia.
Accordingly, our focus going forward involves reinforcing and enhancing our regional and international role. And, in this, there is no doubt we will face competition. But we have faced competition in the past and in an increasingly technology-driven marketplace we don't view it as something to be avoided, but rather something that pushes us to better implement our business expansion plans and enhance our services.
In the face of the growing globalisation of financial markets, we believe it is essential to focus on our core competencies and strengthen what we do best as well as enhance our competitiveness and attractiveness.
There is considerable growth potential for both HKEx's existing customers and products, as well as possible new customers and products. And we will pursue these opportunities.
I have already mentioned renminbi-related products. We will also be exploring commodity- and emissions-related products. In terms of issuers in our markets, Hong Kong is strategically placed in a high growth region, and can leverage the benefits the city offers to attract more companies from more countries, not just from the Mainland, to list on our markets and develop as an Asian-focused marketplace.
To this end, apart from capturing more Mainland-related listings, we have also visited a number of countries, such as Vietnam, Thailand, Malaysia, Kazakhstan and Russia, to explain the advantages of listing in Hong Kong and we will redouble our efforts.
We recently also clarified the requirements for foreign companies to list on our markets and expanded the list of pre-approved jurisdictions. We have the proven capabilities to support more diverse listings and meet issuers' fund-raising needs.
By extending into new business areas, including developing a broader Asian focus and diversifying into new product types, we hope to offer investors even more choice in terms of investment opportunities.
To be effective in our business expansion, our offerings must also be supported by good service delivery to meet what is expected of us. In this regard, we are seeking to improve our communications not only with regulatory authorities, but also issuers and intermediaries. In addition, we are seeking further improvements to our infrastructure while maintaining the existing high levels of system reliability and security.
There are opportunities for us to enhance our performance even with a more competitive global environment. Hong Kong has a strong foundation to build upon, as both China and the region reshape the global economic map. Our city, as an international financial centre, offers many advantages that together make its profile quite unique - such as its free economy, strong legal system, a sound and stable regulatory framework, as well as the free flow of information and capital, which I am sure I don't need to elaborate on here.
Indeed, a few weeks ago, at a press conference after the conclusion of the National People's Congress meetings, China's Premier Wen Jiabao reaffirmed that Hong Kong's status as an international financial centre was irreplaceable.
Hong Kong's Chief Executive Donald Tsang has also said that he would urge Premier Wen Jiabao to strengthen Hong Kong's role as Asia's leading financial centre on a par with London and New York.
I believe this possible. As you may be aware, the recent Global Financial Centres Index, published by the City of London, ranked Hong Kong third as a leading financial centre, saying we performed well in all of the key competitiveness areas, especially in regulation, and suggested there is room for us to grow as a global financial centre.
By taking a proactive approach to capturing opportunities, reinforcing the international standards we are known for, and the attractive benefits we offer as an investment hub we have reason to be optimistic about the road ahead.
With all market participants - such as yourselves - the Government, and the regulatory bodies working together to build on our strengths, I am convinced the best is yet to come. All our individual efforts count, so let us strive to secure the future we desire to see. You and indeed our markets have much to offer to investors.
Thank you.
