discussion topics
DESCRIPTION
DISCUSSION TOPICS. Updates on Financial and Economic Environment Currency Stability Banking Stability Financial Infrastructure Hong Kong as an International Financial Centre The Exchange Fund. FINANCIAL AND ECONOMIC ENVIRONMENT. GLOBAL FINANCIAL MARKETS. - PowerPoint PPT PresentationTRANSCRIPT
2
Updates on
– Financial and Economic Environment
– Currency Stability
– Banking Stability
– Financial Infrastructure
– Hong Kong as an International Financial Centre
– The Exchange Fund
DISCUSSION TOPICSDISCUSSION TOPICS
3
FINANCIAL AND ECONOMIC FINANCIAL AND ECONOMIC ENVIRONMENTENVIRONMENT
4
GLOBAL FINANCIAL MARKETS GLOBAL FINANCIAL MARKETS
• Credit market conditions improved and equity prices rebounded
Source: Bloomberg Source: Bloomberg
3-Month Libor spread over OIS MSCI World and Asia indices
40
60
80
100
120
140
2006 2007 2008 2009
MSCI World
MSCI Asia-Pacific
Jan 2006 = 100
0
50
100
150
200
250
300
350
400
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
-50
0
50
100
150
200
250
300
350
400USEurozoneUK
bps bps
5
PMI: US, euro area and JapanGDP growth: US, euro area and Japan
ECONOMIC CONDITIONS IN ADVANCED ECONOMIESECONOMIC CONDITIONS IN ADVANCED ECONOMIES
Source: BloombergSource: CEIC
• Contraction in advanced economies slowed in Q2, with business sentiment improving to the pre-crisis level
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2006 2007 2008 2009
% qoq annualised
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8% qoq annualised
US Euro area Japan
20
25
30
35
40
45
50
55
60
65
2006 2007 2008 2009
US non-manufacturing ISM
Euro area PMI composite
Japan PMI
6
SUSTAINABILITY OF RECOVERYSUSTAINABILITY OF RECOVERY
0
5
10
15
20
25
Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
% yoy
US Government Outlays
US government outlays US new motor vehicle registration
Source: CEICSource: Bloomberg
• To the extent that economic activity has been boosted by fiscal stimulus packages, the underlying strength of the economy is questionable
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
2006 2007 2008 2009
% yoy 3mma
7
ADVERSE FEEDBACK BETWEEN ADVERSE FEEDBACK BETWEEN REAL ECONOMY AND FINANCIAL SECTORREAL ECONOMY AND FINANCIAL SECTOR
Unemployment rate: US, euro area and Japan
Lending standards
• Rising unemployment rates suggest continuing loan losses for banks, which in turn restrict lending and weigh on growth
Note: An index reading above zero means tightening lending standards
Sources: Federal Reserve, EcoWin
Source: CEIC
0
2
4
6
8
10
12
00 01 02 03 04 05 06 07 08 09
%
US Euro Area Japan
-20
-10
0
10
20
30
40
50
60
70
80
00 01 02 03 04 05 06 07 08 09
ppt
US - Consumer loans
Euro area - Consumer credit
tightening
loosening
8
GDP growth: ASEAN-4GDP growth: NIE-3
ECONOMIC CONDITIONS IN EMERGING ASIAECONOMIC CONDITIONS IN EMERGING ASIA
Source: CEICSource: CEIC
-30
-20
-10
0
10
20
2006 2007 2008 2009
% qoq annualised
-30
-20
-10
0
10
20
% qoq annualised
Korea Taiwan Singapore
-30
-20
-10
0
10
20
2006 2007 2008 2009
% qoq annualised
-30
-20
-10
0
10
20
% qoq annualised
Indonesia Malaysia
Philippines Thailand
9
ACCOMMODATIVE MONETARY POLICYACCOMMODATIVE MONETARY POLICY
• Monetary accommodation is likely to remain for some time
Policy rates: US, euro area, Japan
Source: Bloomberg
0
1
2
3
4
5
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
USEuro areaJapan
%
-8
-6
-4
-2
0
2
4
6
8
10
May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09
% yoy
-8
-6
-4
-2
0
2
4
6
8
10
% yoyUS JapanChina Euro AreaAsia ex Japan
Source: Consensus Forecasts
Consensus forecasts for 2009 growth:US, euro area, Japan, China and Asia
10
RECOVERY IN HONG KONGRECOVERY IN HONG KONG
-8
-6
-4
-2
0
2
4
6
8
Q12008
Q2 Q3 Q4 Q12009
Q2 Q3
Contribution to changein real GDP (% point)
-8
-6
-4
-2
0
2
4
6
8
Quarter-on-quarterchange (%)
Private consumption (lhs) Government consumption (lhs)Fixed investment and inventory (lhs) Net exports (lhs)Real GDP (rhs)
11
OUTPUT LOSS IN COMPARISON WITH OUTPUT LOSS IN COMPARISON WITH THE ASIAN FINANCIAL CRISISTHE ASIAN FINANCIAL CRISIS
86
88
90
92
94
96
98
100
102
0 1 2 3 4 5 6 7
Number of quarters
Real Output Index, SA
-7.8%
Q1 2008
Q3 1997-8.9%
12
LABOUR MARKET CONDITIONSLABOUR MARKET CONDITIONS
+4.3 ppt
+4.0 ppt
+2.2 ppt
Employment grows again
Unemployment rate fell to 5.3% in Sept
-4
-2
0
2
4
6
8
10
97 98 99 00 01 02 03 04 05 06 07 08 09
-2
-1
0
1
2
3
4
5
Change in employment level (% 3m-on-3m) (rhs)Unemployment rate (%) (lhs)
% of labour force % 3m-on-3m
13
HOUSEHOLD BALANCE SHEET CONDITIONSHOUSEHOLD BALANCE SHEET CONDITIONS
Delinquency Ratios
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Mortgage Delinquency RatioCredit Card Deliquency Ratio
%
14
CORPORATE BALANCE SHEET CONDITIONSCORPORATE BALANCE SHEET CONDITIONS
Change in the Number of Registered Companies
Note: Shaded areas indicate periods when real GDP declined for two or more consecutive quarters
-3,000-2,000-1,000
01,0002,0003,0004,0005,0006,0007,0008,0009,000
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Net Change in Number of Registered Companies (3mma)
15
BANKING SECTOR CONDITIONS (I)BANKING SECTOR CONDITIONS (I)
0
2
4
6
8
10
12
14
16
18
20
1997 1999 2000 2001 2002 2004 2005 2006 2007 2009
Capital adequacy ratio %
16
BANKING SECTOR CONDITIONS (II)BANKING SECTOR CONDITIONS (II)
Asset quality
0
2
4
6
8
10
12
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Classified loans (gross)
Overdue and rescheduled loans%
17
INFLOWS INTO THE HONG KONG DOLLARINFLOWS INTO THE HONG KONG DOLLAR
* Figure as of 29 Oct 2009.
0
100
200
300
400
500
600
700
800
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09*
HKD billion
Outstanding EFBN
Aggregate Balance
18
CROSS-BORDER CAPITAL INFLOWSCROSS-BORDER CAPITAL INFLOWS
-100
-50
0
50
100
150
200
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09
HKD billion Current account balance
Private sector capital inflows
19
-6
-4
-2
0
2
4
6
8
10
2007 2008 2009 2010
Hong Kong
Korea
Singapore
Thailand
yoy%
IMF projections
RISKS TO FINANCIAL STABILITY IN HONG KONG (I): RISKS TO FINANCIAL STABILITY IN HONG KONG (I): INFLATIONINFLATION
Inflation rate in HK vs. other Asian economies
Sources: CEIC, IMF World Economic Outlook and HKMA estimates
20
RISKS TO FINANCIAL STABILITY IN HONG KONG (II): RISKS TO FINANCIAL STABILITY IN HONG KONG (II): ASSET BUBBLE: STOCK MARKETASSET BUBBLE: STOCK MARKET
0
50
100
150
200
250
Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09
Rebased to Oct 27, 2008 = 100
Mar 9, 2009
Hong Kong's Hang Seng Index
MSCI Pacific(excl. HK & Japan)
U.S. S&P 500
21
EQUITY MARKET VALUATIONEQUITY MARKET VALUATION
Price-earnings ratio of HSI
5
10
15
20
25
30
Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09
Internetbubble burst
Sep 0918.4
Times
Long-term average: 14.8 times(May 73 - Sep 09)
Asian financial crisis
11 Sep incident
US sub-primecrisis unfolded
Lehmanfailure
±1 standard deviation band
22
BANKING EXPOSURE TO THE STOCK MARKET BANKING EXPOSURE TO THE STOCK MARKET
0
2
4
6
8
10
12
1997Q1
1998Q1
1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
%
non-margin lending (% share)
margin lending (% share)
23
RISKS TO FINANCIAL STABILITY IN HONG KONG (III): RISKS TO FINANCIAL STABILITY IN HONG KONG (III): ASSET BUBBLE : RESIDENTIAL PROPERTIESASSET BUBBLE : RESIDENTIAL PROPERTIES
0
20
40
60
80
100
120
1996 1998 2000 2002 2004 2006 2008
Flat size of 160 sq. metres or above*
Flat size of 100 - 159.9 sq. metres*
Flat size below 100 sq. metres*
1997 Q3 = 100
Note: * Popular development
24
GRAPHICAL FRAMEWORK OF PROPERTY MARKETGRAPHICAL FRAMEWORK OF PROPERTY MARKET
Real property prices
Transactionvolume
Confirmor transactions
Buy-rent gap
Income gearing
Real newmortgages
Q2-3 1997 Jun - Aug 2009 Q2 2003 Q4 2008
25
RISK OF FUND FLOW REVERSALRISK OF FUND FLOW REVERSAL
60
70
80
90
100
110
120
130
140
150
160
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
USD nominal effective exchange rate: major currencies
USD real effective exchange rate: major currencies
Mar 1973 = 100
US dollar exchange rates could revert to their longer-term trends
26
RELATIONSHIP BETWEEN RELATIONSHIP BETWEEN PUBLIC DEBT AND EXCHANGE RATEPUBLIC DEBT AND EXCHANGE RATE: US SITUATION: US SITUATION
0
10
20
30
40
50
60
70
80
90
70 75 80 85 90 95 00 05 10
0
20
40
60
80
100
120
140
160
Federal debt held by the public (lhs)
USD NEER (rhs)
% of GDP USD NEER(Mar-73 = 100)
Source: IMF, CEIC
US government debt and value of USD
27
0
100
200
300
400
500
600
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
0
20
40
60
80
100
120
140
160
180
200
JPY NEER (lhs)
General Government Gross Debt (rhs)
Percentage of GDPJPY NEER(Jan-70 = 100)
Apr-95: 463
Dec-99: 457
Dec-08: 493
RELATIONSHIP BETWEEN RELATIONSHIP BETWEEN PUBLIC DEBT AND EXCHANGE RATEPUBLIC DEBT AND EXCHANGE RATE: JAPAN’S EXPERIENCE: JAPAN’S EXPERIENCE
Japan’s general government debt and value of yen
Sources: CEIC and Haver Select
28
InflationInflationNEAR-TERM ECONOMIC OUTLOOKNEAR-TERM ECONOMIC OUTLOOK
• A recovery should be in place
• Inflationary pressure is likely to remain subdued
• Unemployment rate may stay high
% %
GDP CPIUnemploy-ment rate
GDP CPIUnemploy-ment Rate
HK Government(Aug 09)
-3.5 to -4.5 0.5 - - - -
IMF (Nov 09) -2.0 -1.0 5.1 5.0 0.5 4.8
ADB (Sep 09) -4.0 1.3 - 3.0 2.0 -
Consensus (Oct 09) -3.1 0.4 5.4 3.7 1.7 5.2
%YoY %YoYProjection for 2009 Projection for 2010
29
• Reduced strength of global recovery
• Re-intensification of the adverse
feedback between the real and financial
sectors
• Incorrect timing of exit strategies
RISKS TO ECONOMIC OUTLOOKRISKS TO ECONOMIC OUTLOOK
30
CURRENCY STABILITYCURRENCY STABILITY
31
HONGHONG KONG DOLLAR STAYED CLOSE TO 7.75 KONG DOLLAR STAYED CLOSE TO 7.75
7.65
7.70
7.75
7.80
7.85
7.90HKD / USD
7.65
7.70
7.75
7.80
7.85
7.90HKD / USD
2004 2005 2006 2007 2008 2009
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Spot exchange rate
Convertibility Zone
32
AGGREGATEAGGREGATE BALANCE REMAINED HIGH BALANCE REMAINED HIGH
0
20
40
60
80
100
120
140
160
180
200
220
240
260HKD billion
0
20
40
60
80
100
120
140
160
180
200
220
240
260
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
HKD billion
2004 2005 2006 2007 2008 2009
33
MONETARY BASE EXPANDEDMONETARY BASE EXPANDED
* Figure as of 2 Nov 2009.
0
100
200
300
400
500
600
700
800
900
1000
1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09*
HKD billion
Outstanding EFBN
Aggregate Balance
Certificates of Indebtednessand Gov't Notes and Coins
34
FORWARDFORWARD DISCOUNT REMAINED STABLE DISCOUNT REMAINED STABLE
7.65
7.70
7.75
7.80
7.85
HKD / USD
7.65
7.70
7.75
7.80
7.85
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
HKD / USD
Spot
12-month forward
2007 2008 2009
35
LOW DOMESTICLOW DOMESTIC INTEREST RATES
0
1
2
3
4
5
6
Jan-08 Jul-08 Jan-09 Jul-09
% pa
0
1
2
3
4
5
6% pa
Overnight LIBOR
Overnight HIBOR
0
1
2
3
4
5
6
Jan-08 Jul-08 Jan-09 Jul-09
% pa
0
1
2
3
4
5
6% pa
3-month LIBOR
3-month HIBOR
36
GROWTH IN HK DOLLAR LOANS AND GROWTH IN HK DOLLAR LOANS AND DEPOSITS PICKED UPDEPOSITS PICKED UP
Note: Quarter-end figures
-8
-6
-4
-2
0
2
4
6
8
10 % change over
3 months ago
-8
-6
-4
-2
0
2
4
6
8
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
% change over3 months ago
HKD deposits
HKD loans
2005 2006 2007 2008 2009
37
STRATEGY TO COPE WITH INFLOWS
• Under the Currency Board system, the strong-side CU will be triggered to buy USD and sell HKD at 7.75
• Issuance of additional Exchange Fund Bills, subject to market demand
• Little room for the use of monetary tools to contain inflows-induced price pressure
• Need to strengthen prudential and supervisory measures
38
STRATEGY TO DEAL WITH STRATEGY TO DEAL WITH REVERSAL OF FUND FLOWSREVERSAL OF FUND FLOWS
• Market operations under the Currency Board System
– Foreign reserves built up during the inflow and the large pool of EF paper held by banks will help cushion the downward pressure on HKD if weak-side CU is triggered
– Where appropriate, within-zone operations can be conducted to ensure orderly adjustment in monetary conditions
• Raise the alertness of banks and borrowers to risk of reversal of fund flows
– Remind all market players the exceptionally low interest rates will not last forever
– Strengthening of risk management is the best means of protection from market volatilities in the future
39
BANKING STABILITYBANKING STABILITY
40
16.5%
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09
%
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Capital adequacy ratio improved
Capital adequacy ratio of locally incorporated AIs
41
Quarterly average liquidity ratio of retail banks
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Liquidity level remained high
47.5%
20
25
30
35
40
45
50
55
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
%
42
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
Loan quality showed signs of stabilisation
Overview of loan quality
0
20
40
60
80
100
Classified loan ratioCurrrent: 1.51% (Jun 2009)
Peak: 10.61% (Sep 1999)
Ratio of overdue andrescheduled loans
Current: 1.05% (Jun 2009)Peak: 8.58% (Sep 1999)
Credit card charge off ratio
Current: 4.61% (Q2 2009)Peak: 14.55% (Q3 2002)
Number of negative equity RMLs
Current: 3,767 (Jun 2009)Peak: 105,697 (Jun 2003)
RML delinquency ratioCurrent: 0.05% (Sep 2009)
Peak: 1.43% (Apr 2001)
Peak Latest
43
BANKINGBANKING SECTOR PERFORMANCE SECTOR PERFORMANCE
Net interest margin of retail banks further narrowed
Net interest margin of retail banks (quarterly annualised)
1.78%
1.41%
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
%
44
Hong-Kong-dollar loan-to-deposit ratio declined
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
1,000
1,500
2,000
2,500
3,000
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
HK$ billion
0%
10%
20%
30%
40%
50%
60%
70%
80%
HK$ loans (LHS) HK$ deposits (LHS) HK$ loan-to-deposit ratio (RHS)
45
Total loans of retail banks almost returned to pre-crisis level
BANKING SECTOR PERFORMANCEBANKING SECTOR PERFORMANCE
1,500
1,700
1,900
2,100
2,300
Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
Loans for use in HK Trade finance Loans for use outside HK
HK$ billion
46
Reminded AIs to be prudent in setting mortgage interest rates
Lowered the LTV ratio for luxury properties
Stressed the need for prudence in property valuation and in assessing borrowers’ repayment ability and provided additional guidance to AIs
RESIDENTIAL MORTGAGE LENDINGRESIDENTIAL MORTGAGE LENDING
47
SUPERVISORY POLICY INITIATIVESSUPERVISORY POLICY INITIATIVES
• Consultative papers issued
Enhancements to the Basel II capital framework
Guideline on a Sound Remuneration System
• Proposals to strengthen the liquidity regime will be issued for consultation in early 2010
48
DEPOSIT PROTECTIONDEPOSIT PROTECTION
Completed a review of the Deposit Protection Scheme (DPS) in light of lessons learnt from the financial crisis
Aim at submitting legislative proposals to LegCo in Q1 2010 to raise coverage amount to $500,000 and introduce other changes
Formed a tripartite working group with Malaysia and Singapore to coordinate exit from full deposit guarantee at the end of 2010
49
LEHMAN-RELATED ISSUES - LEHMAN-RELATED ISSUES - MINIBOND REPURCHASE SCHEMEMINIBOND REPURCHASE SCHEME
About 97% of eligible customers (exceeding 24,000) accepted the repurchase offer of banks
About 4,800 previously settled customers eligible for voluntary top-up offer
Investigation will continue in respect of about 800 cases involving ineligible customers or customers who have rejected the offer
50
LEHMAN-RELATED ISSUES - LEHMAN-RELATED ISSUES - INVESTIGATION PROGRESSINVESTIGATION PROGRESS
Received nearly 22,000 Lehman-related complaints, of which around 7,700 relate to non-minibond products
Of the non-minibond complaints:
766 cases under disciplinary consideration
2,473 cases closed due to insufficient evidence
4,457 cases in progress
Aims to substantially complete the investigation of all outstanding complaints by end-March 2010
51
Recommendations which can be introduced by RIs quickly have been implemented
Audio recording: by 30 June 2009
Physical segregation: by 30 September 2009
Proposals to enhance investor protection issued for public consultation in September
Assisting Government on proposals to improve investor education and establish a financial services ombudsman
REPORT ON COMPLAINTS ABOUT SALE OFREPORT ON COMPLAINTS ABOUT SALE OF LEHMAN-RELATED INVESTMENT PRODUCTS LEHMAN-RELATED INVESTMENT PRODUCTS
52
FINANCIAL INFRASTRUCTUREFINANCIAL INFRASTRUCTURE
53
FINANCIAL MARKET INFRASTRUCTUREFINANCIAL MARKET INFRASTRUCTURE
Development strategy:
Robust and efficient payment and settlement system is essential to monetary and financial stability – important to ensure fault-proof day-to-day operation
Business development – Hong Kong as a settlement service utility centre to attract transaction banking business in the region
54
FINANCIAL MARKET INFRASTRUCTUREFINANCIAL MARKET INFRASTRUCTURE
New functions and capabilities of payment and settlement systems introduced in 2009:
March 2009: Payment arrangements with Mainland China’s foreign currency payment systems to facilitate cross border correspondent banking activities
July 2009: Upgrading the RMB RTGS system in Hong Kong to clear and settle the use of RMB for Mainland’s external trade with Hong Kong and ASEAN economies
August 2009: CMU Fund Order Routing and Settlement Service to provide a standard processing platform for investment funds in Hong Kong and in the region
To be introduced in 2010 Payment-versus-payment link between Hong Kong’s US doll
ar RTGS system and the Indonesian Rupiah RTGS system to reduce settlement risk in USD/Rupiah forex transactions and to attract Indonesian banks to use Hong Kong for their USD payment activities
55
GOVERNMENT BOND PROGRAMMEGOVERNMENT BOND PROGRAMME
• Objective: to promote bond market development and financial stability
• HKMA is assisting the Government in implementing the Programme
• The first two bond issues under the Institutional Bond Issuance Programme were well-received by the market, with the bid-to-cover ratios of 6.45 and 4.56
• The Retail Bond Issuance Programme will be launched when market conditions are appropriate
56
DEVELOPMENT OF ISLAMIC FINANCE DEVELOPMENT OF ISLAMIC FINANCE
HKMA’s Four-Part Strategy
Promote market infrastructure Continue to support the Government in drawing up legislative
proposals for modifying Hong Kong’s tax laws
Encourage product development Maintaining close contact with the industry
Build regional and international profile Hosted the Technical Committee Meeting for the Islamic Financial
Services Board Signed MoU with Bank Negara Malaysia Conducted an educational talk for representatives of Bank of
Ningxia
Promote market awareness Continue to provide training to the industry and help resolve tax
and regulatory issues
57
HONG KONG AS AN HONG KONG AS AN INTERNATIONAL INTERNATIONAL
FNANCIAL CENTREFNANCIAL CENTRE
58
INCREASING REGIONAL AND INTERNATIONAL INCREASING REGIONAL AND INTERNATIONAL FINANCIAL CO-OPERATIONFINANCIAL CO-OPERATION
• Financial Stability Board (FSB): Hong Kong participates in the Plenary and all three Standing Committees of the FSB, which has become a focal point of efforts to reform the international financial system
• Chiang Mai Initiative Multilateralisation (CMIM): Hong Kong will participate in this regional joint-defense mechanism that provides participating economies with contingent credit facilities
• 14th EMEAP Governors’ Meeting, 21-23 July, Hong Kong: HKMA coordinated the macro-monitoring work of EMEAP
• Tripartite working group of HKMA, Bank Negara Malaysia and Monetary Authority of Singapore: To map out a coordinated strategy for the scheduled exit from the full deposit guarantee by the end of 2010
59
Renminbi trade settlement pilot scheme
• Commenced operation on 6 July, covering trades between pilot cities in the Mainland and HK, Macau and ASEAN countries
• Banks in HK can offer a wide range of renminbi business to trade enterprises
• At end-Sep, 32 authorized institutions had entered into the clearing agreement with the Clearing Bank or Mainland Correspondent Banks
• Roadshows were conducted to promote HK’s renminbi clearing platform to the ASEAN countries
RENMINBI BUSINESS RENMINBI BUSINESS (1)(1)
60
Renminbi bond issuance in Hong Kong
• PRC Ministry of Finance issued RMB 6 bn in sovereign bonds in September
• HSBC (China) and Bank of East Asia (China) issued RMB 7 bn worth of bonds in total
• China Development Bank issued renminbi bonds in Hong Kong raising RMB 3 bn
RENMINBI BUSINESSRENMINBI BUSINESS (2)(2)
61
THE INVESTMENT ENVIRONMENT THE INVESTMENT ENVIRONMENT ANDAND
PERFORMANCE OF PERFORMANCE OF THE EXCHANGE FUNDTHE EXCHANGE FUND
62
INVESTMENT ENVIRONMENT IN Q1-Q3 2009INVESTMENT ENVIRONMENT IN Q1-Q3 2009
• Exchange rates: US dollar strengthened against the euro and the yen in the first quarter before weakening in the subsequent two quarters
• Equity markets: Major markets declined in the early months of the year but rebounded strongly since mid-March as risk appetite increased on the hope of economic recovery
• Interest rates: US government bond yields, especially long-term yields, rose in the first half of 2009 on inflation expectation and concern over large increases in supply, before declining moderately in the third quarter
• Market optimism emerged since mid-March following the US government’s introduction of quantitative easing. Appetite for risky assets increased amid further signs of stabilisation in the global economy
63
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09
85
88
91
94
97
100
103
USD/Euro FX Rate Yen/USD FX Rate
Yen/USD FX Rate (RHS)
USD/EURO FX Rate (LHS)
CURRENCY MARKET FLUCTUATIONCURRENCY MARKET FLUCTUATION
64
70
80
90
100
110
120
130
140
150
160
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09
Hang Seng Index
DAX
S&P 500
PERFORMANCE OF MAJOR EQUITY MARKETSPERFORMANCE OF MAJOR EQUITY MARKETS
Normalised Index Level (2008 year-end = 100)
65
2.0
2.4
2.8
3.2
3.6
4.0
4.4
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09
Yield (%)
10-YEAR UST YIELD10-YEAR UST YIELD
66
INVESTMENT INCOMEINVESTMENT INCOME
2009 2008 2007 2006
(HK$ billion) Jan - Sep * Full Year Full YearFull Year
Gain/(Loss) on Hong Kong equities^@ (77.9) 55.8 35.9
Gain/(Loss) on other equities^ (73.1) 6.7 18.7
Exchange gain/(loss) (12.4) 18.7 17.3
Return from bonds# 88.4 61.0 31.9
Investment income/(loss)@ (75.0) 142.2 103.8 * Unaudited figures
^ Including dividends# Including interest@ Excluding valuation changes in Strategic Portfolio
67
CHANGES IN INVESTMENT INCOME, PAYMENT TO CHANGES IN INVESTMENT INCOME, PAYMENT TO TREASURY AND ACCUMULATED SURPLUSTREASURY AND ACCUMULATED SURPLUS
I I 2008
(HK$ billion) Q3 Q2 Q1 Full year
Investment income / (loss) 58.5 (33.5) (75.0)
Other income 0.2 0.0 0.3
Interest and other expenses (1.2) (0.7) (6.5)
Net investment income / (loss) 57.5 (34.2) (81.2)
Payment to Treasury # (8.5) (9.1) (46.4)
Payment to HK government /
statutory bodies # (0.3) 0.0 0.0
Valuation change of Strategic Portfolio ^ 3.2 (0.1) (8.9)
Increase / (Decrease) in EF accumulated surplus 51.9 (43.4) (136.5)
* Unaudited figures# The fixed rate of fee payment is 6.8% for 2009 and 9.4% for 2008^ Including dividends
Jan - Sep *
2009
68
HISTORICAL INVESTMENT INCOMEHISTORICAL INVESTMENT INCOME
Year Full Year Q4 Q3 Q2 Q1
2001 7.4 13.6 10.4 (2.0) (14.6)
2002 47.0 26.3 (2.1) 26.5 (3.7)
2003 89.7 33.5 8.4 41.1 6.7
2004 56.7 33.0 14.1 (7.2) 16.8
2005 37.8 7.3 19.0 13.6 (2.1)
2006 103.8 36.0 37.1 12.5 18.2
2007* 142.2 33.4 61.8 26.3 20.7
2008* (75.0) 8.3 (48.3) (20.4) (14.6)
2009*# 58.5 (33.5)
(HK$ billion)
* Excluding valuation changes in the Strategic Portfolio# Unaudited figures
69
EXCHANGE FUND ABRIDGED BALANCE SHEETEXCHANGE FUND ABRIDGED BALANCE SHEET(HK$ billion)
At30 Sep 2009*
At31 Dec 2008
At31 Dec 2007
ASSETS
Deposits 172.8 132.9
Debt securities 1,151.3 922.9
Hong Kong equities 92.9 184.6
Other equities 103.3 146.0
Other assets 40.0 28.0
Total assets 1,560.3======
1,414.4======
LIABILITIES AND FUND EQUITY
Certificates of Indebtedness 176.1 163.4
Government-issued currency notes & coins in circulation 8.3 7.5
Balance of the banking system 158.0 10.6
Exchange Fund Bills and Notes 162.5 141.8
Placements by banks and other financial institutions 13.6 0.0
Fiscal Reserves Account 531.4 464.6
Placements by Hong Kong government/statutory bodies 0.1 0.0
Other liabilities 29.8 9.5
Total liabilities 1,079.8 797.4
Accumulated surplus 480.5 617.0
Total liabilities and fund equity 1,560.3======
1,414.4======
* Unaudited figures