institutional investors in the hong kong securities market
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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. Agenda. Overview of the Hong Kong securities market Institutional Investor Profile - Overall - PowerPoint PPT PresentationTRANSCRIPT
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
• 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
Agenda
3
Overview of the Hong Kong securities market
Hong Kong stock market is 16 times its size in 1986
Market Capitalisation of the Hong Kong Stock Market(Main board and GEM)
419 420 580 605 650949
1,332
2,975
2,085
3,2032,662
3,9463,611
5,548
6,696
4,8624,735
3,476
2,348
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
HK$ bil
4
Overview of the Hong Kong securities marketHong 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 35.44 London 33.4
5 Toronto 30.5
6 Euronext 26.8
7 Tokyo 25.8
8 Australia 25.6
9 Nasdaq 14.7
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
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: HK$6,696 billion• Turnover value: HK$3,974 billion• Funds raised by IPO: HK$97.2 billion• Total equities funds raised: HK$281.4 billion • Products: equity, warrants, ELI, unit trusts and debt securities
6
Overview of the Hong Kong securities marketHong Kong derivatives market has increased 24 times since 1986
Turnover and Open Interest of Hong Kong Derivatives Market
0.8
3.6
0.1 0.2 0.2 0.5 1.12.7
4.85.6
7.2
9.7 10.18.5
9.310.5 11.0
14.5
19.6
0
5
10
15
20
25
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20040
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Contract Volume
Open Interest
Million Contracts
Open Interest (000 contracts)
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
8Source: Cash Market Transaction Survey 2003/2004, HKEx
Institutional Investor Profile - OverallInstitutional investor is the largest contributor to stock market turnover, except in 1997 and 2000
Distribution of Stock Market Turnover by Type of Investor
55.46
39.8052.25 48.45 45.59
57.15 58.50 62.7255.46
60.76
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/2000
2000
/01
2001
/02
2002
/03
2003
/04
Institutionalinvestortrading
Retailinvestortrading
EPs'principaltrading
9Source: Derivatives Market Transaction Survey 2003/2004, HKEx
Institutional investors also actively participated in the Hong Kong derivatives market
Institutional Investor Profile - Overall
Distribution of Derivatives Trading by Type of Investor
31.632.931.824.9
0%
20%
40%
60%
80%
100%
2000/01 2001/02 2002/03 2003/04
Principal Trading
Institutional investors
Retail investors
10Source: Cash Market Transaction Survey 2003/2004, HKEx
Trading value of institutional investors in the stock market continued to rise over the years
Institutional Investor Profile - Overall
Implied Trading Value of Institutional investors in Hong Kong Stock Market
486617
1,403
1,098
793
1,477
1,1801,008
1,236
2,109
0
500
1,000
1,500
2,000
2,500
1994
/95
1995/9
6
1996
/97
1997
/98
1998
/99
1999
/2000
2000
/01
2001
/02
2002
/03
2003/0
4
HK$Bil
11Source: Derivatives Market Transaction Survey 2003/2004, HKEx
Trading volume of institutional investors in the derivatives market also increased over the years.
Institutional Investor Profile - Overall
Implied Trading Volume of Institutional investors in the Derivatives Market
2,735,2333,237,325
4,063,842
5,622,654
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2000/01 2001/02 2002/03 2003/04
Contracts
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
Distribution of Derivatives Market Trading by Investor Type (Jul 2003 - Jun 2004)
Overseas retail investors
3%
Local institutional investors
10%
Overseas institutional investors
22%
Exchange participants' principal
trading36%
Local retail investors29%
Source: HKEx Derivatives Market Transaction Survey 2003/2004, 8 Dec 2004Note: Exchange Participants' principal trading comprises trading as registered traders/market makers and proprietary trading
Distribution of Cash Market Trading Value by Investor Type (Oct 2003 - Sept 2004)
Exchange participants' principal
trading7%
Overseas retail investors
3%
Local retail investors34%
Local institutional investors
23%
Overseas institutional investors
33%
Source: HKEx Cash Market Transaction Survey 2003/2004, 26 January 2005
Local institutional investors contributed 23% and 10% of trading in cash and derivatives markets
14
Local Institutional Investor ProfileImplied Turnover of Local Institutional Investors
(Stock Market)
262,500288,706
720,468
455,604
298,387
568,064
402,500 410,468
551,483
854,609
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/2000
2000
/01
2001
/02
2002
/03
2003
/04
0
5
10
15
20
25
30
35
Trading value market share
HK$Mil %
15
Local Institutional Investor Profile
Implied Turnover of Local Institutional Investors (Derivatives Market)
1,306,9071,453,441
1,195,865
1,772,436
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
2000/01 2001/02 2002/03 2003/040.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Contract Volume Market Share
Contract
Source: Derivatives Market Transaction Survey 2003/2004, HKEx
16
Local institutional investor profile
Local Institutional Investors' Trading in Derivatives by Product (Jul 2003 - Jun 2004)
Stock options20%
H-shares Index Futures6%
Mini-HSI Futures7%
HSI Futures38%
HSI Options29%
Source: HKEx Derivatives Market Transaction Survey 2003/2004, 8 December 2004Note: The figures are based on contract volume where the contract size may vary across products
Total: 1.7 million contracts
17
• 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
Local institutional investor profile
18
Overseas Institutional Investor ProfileOverseas institutional investors contributed 33% and 22% of trading in cash and derivatives markets
Distribution of Cash Market Trading Value by Investor Type (Oct 2003 - Sept 2004)
Exchange participants' principal
trading7%
Overseas retail investors
3%
Local retail investors34%
Local institutional investors
23%
Overseas institutional investors
33%
Source: HKEx Cash Market Transaction Survey 2003/2004, 26 January 2005
Distribution of Derivatives Market Trading by Investor Type (Jul 2003 - Jun 2004)
Overseas retail investors
3%
Local institutional investors
10%
Overseas institutional investors
22%
Exchange participants' principal
trading36%
Local retail investors29%
Source: HKEx Derivatives Market Transaction Survey 2003/2004, 8 Dec 2004Note: Exchange Participants' principal trading comprises trading as registered traders/market makers and proprietary trading
19
Overseas Institutional Investor Profile
Implied Turnover of Overseas Institutional Investors (Stock Market)
223,537327,820
682,072 642,833
494,961
909,108777,163
597,978684,506
1,254,113
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1994
/95
1995
/96
1996
/97
1997
/98
1998
/99
1999
/2000
2000
/01
2001
/02
2002
/03
2003
/04
0
5
10
15
20
25
30
35
40
45
50
Trading value market share
HK$Mil
20
Overseas Institutional Investor ProfileTurnover of Overseas Institutional Investors
(Derivatives Market)
1,428,3261,783,884
2,867,976
3,850,219
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
2000/01 2001/02 2002/03 2003/040.0
5.0
10.0
15.0
20.0
25.0
30.0
Contract Volume Market Share
Contract
21
Overseas Institutional Investors' Trading in Derivatives by Product (Jul 2003 - Jun 2004)
Stock options2%
H-shares Index Futures9%
Mini-HSI Futures0%
HSI Options12%
HSI Futures77%
Source: HKEx Derivatives Market Transaction Survey 2003/2004, 8 December 2004Note: The figures are based on contract volume where the contract size may vary across products
Overseas institutional investor profile
Total: 3.6 million contracts
22Source: Cash and Derivatives Market Transaction Surveys 2003/2004, HKEx
Institutional investors mostly come from Europe, UK and US
Overseas Institutional Investor Profile
Overseas Investor Trading in Derivatives Market by Origin
US25%
UK25%Europe (excl UK)
10%
Japan2%
Mainland11%
Taiwan1%
Singapore20%
Rest of Asia2%
Others4%
Overseas Investor Stock Trading by Origin (2003/2004)
UK28%
Rest of Europe 24%
Rest of Asia1%
Others3%
Singapore8%
Japan3%
Mainland China7%
Taiwan1%
US25%
23
• 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.
Overseas institutional investor profile
24
• 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
Regulatory/infrastructure developments affecting institutional investors
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
• 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
Business developments affecting institutional investors
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
Equity Funds Raised by China-related Companies (Main Board & GEM)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004*
H share Red chips NHMPE
HK$Mil
23,515 23,106 9,667 26,920
114,180
22,217
60,438
350,027
29,809
74,58856,058
113,611
28
China dimension
Market Capitalisation of China-related Companies (Main Board & GEM)
143,649 104,739 127,592295,446
522,424372,809
1,005,299
1,308,650
1,049,165982,265
1,679,692
2,020,456
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20040%
5%
10%
15%
20%
25%
30%
35%
Market capitalisation % of market
HK$Mil
29
China dimension
122 92 63161
1,344
444 461
866787
499
1,052
1,665
12%9% 9%
12%
28%26%
29%
42%
33%
46%
49%
38%
0
200
400
600
800
1000
1200
1400
1600
1800
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20040%
10%
20%
30%
40%
50%
60%
Turnover% of equity turnover
%
HK$Mil
Turnover of China-related Stocks (Main Board & GEM)
30
China dimension
Since 1993
Funds Raised at
IPO (HK$mil)
Market Capitalisation
(HK$mil)
1 China Unicom Ltd 22/6/2000 43,607.70 77,262.43
2 China Mobile (Hong Kong) Ltd (formerly China Telecom (HK) Ltd) 23/10/1997 32,665.05 518,392.32
3 China Life Insurance Co Ltd - H Shares 18/12/2003 26,713.82 38,694.11
4 China Petroleum & Chemical Corporation - H Shares 19/10/2000 26,680.98 53,697.56
5 PetroChina Co Ltd - H Shares 7/4/2000 22,329.67 72,967.03
6 BOC Hong Kong (Holdings) Ltd 25/7/2002 20,516.42 157,005.79
7 Ping An Insurance (Group) Co of China Ltd 24/6/2004 14,336.92 33,774.10
8 Semiconductor Manufacturing International Corporation 18/3/2004 13,857.58 30,816.51
9 China Telecom Corporation Ltd - H Shares 15/11/2002 11,800.29 39,550.62
10 CNOOC Ltd 28/2/2001 11,046.71 171,393.67
The Ten largest IPOs of Hong Kong
31
China dimension
• China related companies (including H shares, red chips and Non-H share Mainland private enterprises) are increasingly attracted to seek listing on HKEx’s Main Board and GEM. They now represent:
• 28% of total number of listed companies (as at 31 Jan 2005)
• 30% of market capitalisation (as at 31 Jan 2005)
• 32.1% of total equity funds raised for 2004
• 79% of IPO funds raised for 2004
• 42% of total turnover value for 2004
• More importantly, trading activities of these China related companies stay with Hong Kong. Hong Kong has an average of 80% and 99% of market share in the trading of China stocks dually listed in US and London respectively.
32
China dimension
As at end of December 2004 Hong Kong Shanghai Shenzhen
Number of listed companies 1,096 882 578
Total market capitalisation # (HK$Bil) 6,696 690 406
Total equity turnover for 2004 (HK$Bil) 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 = HK$1.0658
Key market statistics of Hong Kong, Shanghai and Shenzhen
33
Mainland institutional investor profileChina dimension
Estimated Investment in Mainland's Tradable Stocks and Listed Government Bonds by Investor Type
Retail investors66%
NSSF1%
Securities investment funds7%
Securities firms - asset management
6%
Privately-offered funds12%
Securities firms - proprietary account
3%
Insurance companies*3%
QFII1%
Trust & investment companies
1%
Note: The figures were late 2003 estimates based on information obtained by HKEx from various sources. * Insurance companies at that time had to invest via securities investment funds. The figure for insurance companies was excluded from the figure for securities investment funds.
Mainland institutional investor profile
34
• 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 Mainland’s tradable stocks and government bonds exceeds HK$500 billion, around one-third of total market value.
• Investment channels and vehicles still subject to quotas and other restrictions
China dimensionMainland institutional investor profile
35
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
China dimension
36
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