People’s Republic of China—Hong Kong Special Administrative Region: Selected Issues
Author: International Monetary Fund
Publication Date:
15 May 2002
eISBN:
9781451816839
Language:
English
Keywords:
ISCR; CR; Hong Kong SAR; price; deflation; bond market; Hong Kong market; bank lending; bond market Siz; Hong Kong stock exchange; record HK; Stock markets; Bonds
Download PDF (177.4 KB)

This Selected Issues paper examines the economic integration between Hong Kong Special Administrative Region (SAR) and the Mainland of China. Hong Kong SAR’s economic links with the Mainland expanded rapidly in the 1980s and in the first part of the 1990s, with Hong Kong SAR becoming the most important trade and international fundraising center for the Mainland. Since Hong Kong SAR’s return to China’s sovereignty, integration between the two economies has deepened, notwithstanding the Asian crisis.

Abstract

This Selected Issues paper examines the economic integration between Hong Kong Special Administrative Region (SAR) and the Mainland of China. Hong Kong SAR’s economic links with the Mainland expanded rapidly in the 1980s and in the first part of the 1990s, with Hong Kong SAR becoming the most important trade and international fundraising center for the Mainland. Since Hong Kong SAR’s return to China’s sovereignty, integration between the two economies has deepened, notwithstanding the Asian crisis.

IV. The Structure and Financing Patterns of the Hong Kong SAR Capital Market1

A. Introduction

1. Hong Kong SAR’s capital market acts as a major funding center for the region. Bank lending and equity issuance have been the dominant sources of financing for corporations, while debt issuance has played a relatively minor role. This chapter describes the structure of the Hong Kong markets in terms of financing mode, investor base and market regulation; the contribution of the different modes of financing; and assesses the potential benefits of developing the bond market.

2. Although conceptual arguments generally favor further development of the debt market, there have also been concerns that this may have some costs. A deep and mature capital market can increase financial intermediation and serve as an alternative funding source to equity and bank financing when those sources dry up. However, it has also been argued that bond markets may not fulfill such a role during a crisis, and may in fact amplify the transmission of external shocks.

3. The empirical analysis in this chapter attempts to assess the Hong Kong bond market’s capacity to serve as an alternative source of finance during a crisis. The results are mixed, with no significant evidence for the bond market as an alternative tobank lending but some degree of substitutability forequity financing.

B. Overview of the Capital Market

4. Hong Kong SAR’s financial sector is dominated by the stock market and the banking sector, with the debt market playing a much smaller role.

  • The Hong Kong stock market (SEHK) is the 10th-Iargest in the world and the second-largest in Asia in terms of market capitalization. Together with bank financing, it remains the prime source of raising capital in Hong Kong SAR.

Chart 1.
Chart 1.

Stock market capitalization, 1998–200.

(in US$ billons)

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

  • Hong Kong SAR’s banking sector is the second largest in the Asia after Japan. In terms of total bank assets to GDP, Hong Kong SAR is only matched by Singapore, and it has the highest ratio of foreign assets to GDP, reflecting its role as an international financial center.

Table 1.

Banking System Assets (End-2000)

article image
Source: IFS, BIS and Fund Stan estimates.

  • In contrast, the bondmarket has lagged behind the equity and banking sectors. At end-2001, the size of the bond market totaled about US$63 billion, or about one-third of GDP, a much lower ratio than for other leading fixed-income markets (Table 2).

Table 2.

Bond Market Siz.

(outstanding, end-2001)

article image
Souce: HKMA

Data for end-2000.

5. Financial and business services have contributed a large and rising proportionof GDP. The contribution of financial, insurance, and business services increased from 10.6 percent in 1990 to 16.7 percent in 2000 (Table 3).

Table 3.

Contribution of Financial, Insurance and Business Services to GDP

article image
Source: Census and Statistics Department

Figures arc subject to revision

The Equity Market

6. The equity market has been a major source of funding for companies in Hong Kong SAR.

  • Despite a drop in the wake of the Asian Crisis, funds raised during 1998–2001 on the. Main Board were about 1½ times the amount raised in the preceding four-year period. Since 1998, an average HK$ 170 billion per year (equivalent to 15 percent of GDP), has been raised by 140 companies. Byend-2001, there were 756 companies listed on the Main Board, including 50 Chinese state-owned enterprises.

Chart 2.
Chart 2.

Hong Kong SAR: Main Board.

Total Equity Funds Raised and Number of Newly Listed Companies

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Source: CE1C

  • The Growth and Enterprise Market (GEM) was established in November 1999 to provide an alternative fund-raising channel for emerging growth companies. As of end-2001, there were 111 GEM-listed companies with over HK$ 6 billion in funds raised, providing an important source of financing for emerging companies.

Chart 3.
Chart 3.

Hong Kong SAR: GEM.

Total Equity Funds Raised and Number of Newly Listed Companies

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Source: CE1C

7. The Main Board is dominated by large enterprises operating in more than one sector of the economy. Although “industrials” account for nearly half of the listed companies, they represent only 7 percent of market capitalization. “Consolidated enterprises” (engaged in more than one sector of economic activity) account for over 40 percent of market capitalization; “financials” represent about 30 percent; and the rest are mainly in the property sector and utilities. The stock market is thus dominated by “financials” and “consolidated enterprises”, i.e. firms operating in numerous spheres of the economy.

Chart 4.
Chart 4.

Composition of Main Board, 2001

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Source: Hong Kong Stock Exchange

The Banking Sector

8. Hong Kong SAR has a sophisticated banking system, with 263 authorized institutions at end-2001. There were 154 licensed banks, 48 restricted licensed banks and 61 deposit-taking institutions from over 40 countries. Hong Kong SAR maintains a three-tier system of deposit-taking institutions, consisting of licensed banks, restricted-license banks and deposit-taking institutions - collectively known as Authorized Institutions (AIs), (see Section B, Paragraph 19). As noted, Hong Kong SAR has a higher ratio of bank assets to GDP than most international financial centers and over half of those assets are external, indicating a large amount of international intermediation.

9. While bank lending was an important source of corporate financing through 1997, it has declined since then. Bank loans for use in Hong Kong SAR has the been the traditional mode of finance for corporate expansion. Such loans rose steadily in the 1990s before falling in 1998–99. The decline reflected the effects of the regional crisis and the subsequent collapse in property prices. Lending recovered slightly in 2000, but fell again with the renewed economic downturn last year. Lending to manufacturing, wholesale and retail trade and financial services has declined the most in recent years (Table 4).

Table 4.

Net loans for use in Hong Kong SAR by economic sector

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Source: HKMA.

Debt Market

10. The Hong Kong Debt market is dominated by issues from government and statutory bodies. Other major issuers include authorized institutions, overseas corporations and multilateral development banks.

  • Public Sector Bonds:This consists of Exchange Fund Bills and Notes as well as bonds issued by statutory bodies. Regular issuance under the Exchange Fund Bills and Notes Program was curtailed in 1998, when measures were introduced to strengthen the currency board. Since then, new paper can only be issued if there is a corresponding inflow of foreign reserves.

Table 5.

New Hong Kong Dollar Debt Securities Issued (HKS billions)

article image
Source: HKMA.

  • Foreign bond issues are placed by multilateral development banks and foreign corporations. Multilaterals consists of organizations such as the Asian Development Bank, which usually borrow in Hong Kong dollars, and then swap the proceeds into foreign currency. Foreign companies have issued an increasing amount of bonds on the Hong Kong SAR market in recent years. In 2001, over HK$ 55 billion worth of foreign corporate bonds were issued, representing 15 percent of total new issues.

  • Local corporate bond issuance has been limited. Local corporates accounted for only a small fraction of new issues in 2001. Although there were 240 corporate bonds listed on the SEHK, most of them were in foreign currency and privately traded. As a result, the pricing details were not publicly available and a well functioning secondary market remains to develop.

11. Although the average maturity of bonds has increased in recent years, it still remains below pre-crisis levels.

  • Since September 1998, existing Exchange Fund issues can only be rolled over upon maturity. The maturity profde of Exchange Fund issues is heavily skewed toward the short-end. However, since November 2000, maturing short term paper can be replaced with longer-term paper.

  • After falling in 1997–98, the maturity profile of corporate bonds has partly recovered in recent years. The maturity of new bond issues fell significantly in 1997–98, reflecting the turbulent financial market conditions during the Asian crisis. Since then, average maturity has recovered somewhat, but it is still below pre-crisis levels.

Table 6.

Average Maturity of Fixed-Rate Debt (in years)

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The Investor Base2

12. In terms of transactions, local investors comprised the largest group of investors in the stock market. In 2001, local investors contributed over half of all trades, with local individual investors and overseas institutional investors the largest groups. Investors from the United Kingdom were the largest foreign group, followed by the United States investors (Chart 5)

Chart 5.
Chart 5.

Main Board Distribution of Trading (2001)

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Sources: Hong Kong Exchanges and Clearing Ltd. and Securities and Futures Commission.

  • Local investors have tended to trade more pro-cyclically than foreign investors. Local investor participation has tended to rise faster during bullish periods while it fell more rapidly in bear markets (Chart 6).3

Chart 6.
Chart 6.

Hong Kong Stock Exchange: Implied value of trading by Investor type.

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

13. Hong Kong SAR has an active asset management and insurance industry. The number of fund management companies rose to over 200 in 2001. Total Assets under management totaled HK$ 1.5 trillion in 2000 (about 120 percent of GDP), down from about HK$3.5 trillion in 1999. The drop reflected the restructuring of a large overseas fund, and the global downturn in equity prices. About one-third of those assets were attributable to Hong Kong investors, with close to 60 percent invested overseas. Hong Kong SAR also has a sizeable insurance industry, with over 200 insurers (about half of which were foreign).

Chart 7.
Chart 7.

Mutual Funds-Total assets managed in Hong Kong SAR 2000

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Source: Securities and Futures Commission.

14. While institutional funds4 and pension funds invested about three-quarters of their assets overseas, funds catering to individual investors5 held predominantly local assets. The introduction of the Mandatory Provident Fund (MPF) in 2000 should enhance institutional investor demand for local assets.

Chart 8.
Chart 8.

Destination of investment by type of Funds

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

15. Companies from the Mainland of China are increasingly using the Hong Kong market to raise funds. The majority of issues were used to raise capital for large state-owned enterprises. Initially such issues were mainly through individual company offerings, while conglomerate issues have become more prominent recently.

  • The number of H share IPOs (China-registered companies) increased during the mid-1990s, with 16 new issues in 1997. With the onset of the Asian crisis, H Share IPOs declined sharply. In 2000, only 3 companies issued IPOs, albeit raising a record HK$52 billion in funds, (including two large issues by Mainland companies in the petroleum sector).

Chart 9.
Chart 9.

Hong Kong SAR: H-Share.

Market Capitalization and Number of Listed Companies

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Source:CEIC

  • Syndicated borrowing by Mainland corporations rose rapidly through 1997, but has declined since. A large number of private and state-owned corporations from the Mainland have tapped this market. From negligible amounts in 1990, syndicated lending mainland firms increased to over US$4.5 billion in 1997, before declining to below US$1 billion in 2000.

Chart 10.
Chart 10.

Syndicated Loans issued to China Borrowers

Citation: IMF Staff Country Reports 2002, 099; 10.5089/9781451816839.002.A004

Source:Hong Kong Stock Exchange

16. The number of private corporations from the Mainland tapping the Hong Kong market has increased. The borrowers in the early 1990s were predominantly public enterprises. In recent years, more private corporations have started to access the Hong Kong market.

Table 7.

Number of China borrowers

article image
Source: Bondware.

Money Market and Derivatives

17. The money market consists mainly of the interbank market. It is mostly used by institutions at the wholesale level, where the supply and demand of funds determines the Hong Kong Interbank Offer Rate (HIBOR). The interbank market is an important source of funding for banks without extensive retail networks (mostly foreign incorporated institutions). For banks with a large customer base, the interbank market provides an outlet to invest in short-term loans.

18. Hong Kong SAR also has a sophisticated derivatives market. It is the fifth largest in the Asia-Pacific region (following Japan, Korea, Australia and Singapore), with notional value over US$600 billion and turnover equal to 80 percent of stock market capitalization. There are about 14 futures and options products traded on the Hong Kong Futures Exchange (HKFE), mainly based on interest rate and stock indices. An active over-the-counter market is used to trade swaps, forwards and options in relation to equities, interest rates and currencies.

Market Regulation

19. The HKMA, established in 1993, carries out the central banking functions and operates the currency board. The supervisory regime differentiates between the three types of authorized institutions (AIs). Onlylicensed banks can operate current accounts; restricted license banks are principally engaged in merchant banking and capital market activities.Deposit taking companies are engaged in a range of activities, including consumer finance and securities business but are restricted to taking deposits of HK$100, 000 or above with original maturity of 3 months. AIs have to comply with the provisions of the Banking Ordinance, which, inter alia, require them to maintain adequate liquidity and capital adequacy ratios, submit periodic statistics, and adhere to various other criteria in line with the Basel Core Principles.

20. The Securities and Futures Commission (SFC) was established in 1989 as an autonomous statutory body responsible for the regulation of the securities, futures and financial investment industries. The Securities and Futures Ordinance (2002) consolidates and modernizes the number of relevant regulations into a composite piece of legislation in line with international standards, aiming to provide a more transparent regulatory regime, promote market development, and protect investors. New elements include a single license for market intermediaries to streamline regulatory arrangements and reduce compliance burden; new licensing requirements to better protect clients’ assets; expanded procedures to combat market misconduct; and strengthened requirements for interest disclosures.

C. Developing the Bond Market

21. As noted, bank and equity financing are the leading modes for raising capital in Hong Kong SAR, while the bond market has lagged behind. Recent research by the HKMA6 has identified several reasons why the bond market has lagged behind other modes of raising capital. These include unfavorable tax treatment of bonds, lack of adequate benchmark in the yield curve, deficiencies in debt issuance and listing procedures, restrictive credit rating requirements, low secondary market liquidity, and the small number of institutional investors with long-term investment horizon7.

22. There are several compelling economic reasons for the development of a bond market.

  • A deep and mature bond market can improve economic efficiency by helping to channel resources between creditors and borrowers.

  • It also helps development of a market-determined term-structure of interest rates that can serve as a benchmark for pricing credit risk.

  • The shape of the yield curve can provide policy makers with useful information about market expectations.

  • A well developed bond market can introduce competition to banks and lower the costs of raising capital.

  • It has also been argued that bond markets can provide an alternative avenue for finance in the event of a significant market downturn (Greenspan, 2000). For example, the US bond market seemed to provide an alternative source of financing during the Latin American Debt Crisis and the Savings and Loans Crisis in the 1980s.

  • Fixed-income instruments also enable banks to transfer risk through securitization. The bond market enables banks and other financial institutions to repackage loans and sell them as bonds, thereby reducing banks’ exposure to maturity mismatch.

23. However, there may be potential costs of having a developed bond market during a crisis. HMKA (2001)8 argues that a financial crisis maybe amplified as a result of contagion via the bond market, as investors engage in herding behavior due to asymmetric information and inability to differentiate between good and bad risks. It argues that in a number of countries that experienced financial crises (including Russia 1998, Brazil 1999 and Turkey 2000), the debt market did not serve as an alternative source of financing. To the contrary, debt markets were the first to collapse and thus seemed to act more as an agent of contagion than a cushion against it. The remainder of this section analyzes the potential for substitution between the major financing modes (equity, bonds, and bank lending) in Hong Kong SAR.

Methodology for analyzing alternative modes of financing

24. Most of the empirical work on the development and efficiency of bond markets has focused on sovereign debt9. Eichengreen and Mody (1998) examined the determinants of issue-spreads for sovereign bonds, and discussed the domestic macroeconomic and external factors which may influence the decision to issue a bond and the pricing of bonds. They find key macroeconomic variables, such as high foreign reserves and high real growth, conducive for issuing bonds. They also find that increases in industrial country interest rates and fiscal deficits tend to increase the cost of capital and discourage issuance.

25. This paper employs a similar framework to analyze corporate bonds issues in Hong Kong SAR. It assesses the macroeconomic and firm-specific factors that may affect the amount of bonds issued, and whether the bond market serves as an alternative mode of financing during a financial crisis. Specifically, it examines whether there are co-movements between corporate bond issuance and bank and equity finance, controlling for the macro variables and a firm-specific variable.

Econometric estimation

26. An econometric financing model is estimated, linking bond issuance with firm-specific and macroeconomic variables. The estimation is carried out in two steps: It first decomposes the firm-specific factors from the macroeconomic factors, and then estimates the financing model.10

  • As the launch spread is a combination of firm-specific and macroeconomic factors, and since firm-specific data is not available, an “implicit” firm-specific credit rating variable is derived. The launch spread is first regressed on key macroeconomic variables, and the residuals from this equation are assumed to be the “implicit” firm-specific credit rating variable.

  • In the financing models, the volumes of bond issuance are regressed on macroeconomic variables and the “implicit” firm-specific variable. To test for possible substitution effects during crisis periods, appropriate interactive dummy variables are used.

27. The results are as follows:

  • Bond issuance is positively associated with real growth and the reserve position, while an increase in foreign interest rates raises the cost of borrowing and reduces bond issuance.

  • The coefficient for the firm-specific variable is negative, which implies that a lower firm-specific risk premium is associated with a greater amount of bonds issued. However, this variable is not highly significant.

  • There is no significant evidence of substitution between bond financing and bank borrowing, but some evidence of substitution of bonds for equity financing.

  • Financial crises adversely affect equity issuance, and the bond market seems to be an alternative mode for raising capital during a crisis. This was particularly evident during the Mexican Crisis in 1994 .

  • These results have to be treated with caution due to the paucity of data, particularly for firm-specific factors, and the small sample size.

D. Conclusions

  • Hong Kong SAR continues to be a leading international financial center. Hong Kong SAR has traditionally been a prime center for raising and intermediating capital among foreign companies. Companies from the Mainland of China are increasingly using Hong Kong markets to raise funds.

  • Equity and bank lending have been the dominant forms of raising capital, while the bond market has lagged behind. Several studies have identified the bond market as an area that can enhance Hong Kong SAR’s position as a leading financing center.

  • A well developed bond market has several important economic benefits, but may also have some costs. A deep and mature bond market can cushion the economy from credit disruptions when other forms of financing (equity and bank lending) dry up. Bond markets can also contribute to more efficient allocation of resources by providing competition to the banking system, lowering the cost of capital and encouraging greater financial intermediation and growth. However, it has also been argued that bond markets may act as channels of contagion during financial crises.

  • Empirical results are mixed regarding the bond market’s role as an alternative source of financing in Hong Kong SAR. The analysis found no significant statistical evidence for the bond market as an alternative to bank lending during crisis and non-crisis periods. However, there is some evidence of substitutability between the bond market and the equity market during crisis episodes.

Annex

28. Econometric estimation proceeds in two steps. Since the launch spread is a combination of firm-specific and macroeconomic factors, and since firm-specific data is not available, an “implicit” firm-specific credit rating variable is derived.

  • First, the launch spread is regressed on key macroeconomic variables, and the residuals derived from this equation are assumed to be the “implicit” firm specific credit rating variable.

  • Second, the financing model is estimated, using the “implicit” firm-specific variable and macroeconomic variables. The regression model estimates the volume of corporate bond issuance (local and foreign currency) as a function of foreign reserves, real GDP growth, the government budget balance, and foreign debt, and the firm-specific variable.

29. Determining the macroeconomic and firm-specific effects at launch. The following equation was estimated (in logs), using quarterly data, to obtain firm-specific residuals:

Spreadt=α0+α1resgrt−1+α2debtgdpt−1+α3rgdggrt−1+α4fisbalgdpt−1+trend+μ

where Spread - launch spread over an appropriate benchmark, in bps

resgr - foreign reserves growth,

debt/gdp - gross external debt outstanding to all BIS reporting banks,

rgdpgr - real gdp growth

fisbal/gdp - fiscal deficit to GDP

trend - time trend

The following results were obtained (t-statistics in parenthesis):

Spreadt=3.97(5.6)−4.77(1.9)resgrt−1+0.2(0.2)debt/gdpt−1−0.2(1.6)rgdpgrt−1−0.01(0.2)fisbal/gdpt−1+0.02(5.8)trend  

Adj. R2 = 0.81; F(5,15) = 18.91; Obs. = 21; Period Q1–1984-Q2–2001.

  • The results suggest that the key macro determinants of corporate bond spreads are the foreign reserve position and real growth. Foreign reserve growth significantly reduces corporate bond spreads. Real GDP growth is also correctly signed, though significant only at the 10 percent level; that is, real income growth reduces the launch spread and cost of issuing debt. Foreign debt to GDP is positive in sign but insignificant. A weak fiscal balance is negative in sign but also insignificant.

  • The residuals from this equation were then used in the second model as a “firm-specific credit rating” variable. The model regresses the log of bond issues on macroeconomic factors, the firm-specific variable, and alternative modes of financing. As a proxy for an appropriate risk-free rate benchmark, the yield on ten-year US treasury bonds at the time of issue was used. The explanatory variables in model (1) were a range of macro and external variables and the firm-specific variable. In model (2), sensitivity to a crisis variable11 was tested; in model (3), syndicated bank lending is added to test whether the bond market serves as an alternative source of financing. Model (4) tests the substitution between the bond and equity markets.

30. Results

Table 8.

Simple OLS Regression Results - Bond Issuance Model

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  • In model 1, which regresses bond issuance on the standard macro variables, bond issuance is positively associated with real growth and the strong reserve position. The coefficient on the US ten-year rate is negative and correctly signed, i.e., an increase in foreign interest rates increases the cost of borrowing and reduces bond issuance. However, this variable is not significant. The firm-specific variable is negative in sign and implies that the lower the risk premium associated with firm-specific factors, the greater the amount of bonds issued. A crisis dummy variable is introduced in model 2, to test the robustness of the results, and the coefficients were not altered significantly.

  • Model 3 introduces the log of syndicated loan issues to test for co-movements between the two modes of raising capital. Although positive in sign, the coefficient on the loan variable is not significant. When equity issues were introduced in model 4, a negative and insignificant sign is obtained. The results seem to suggest that the bond market does not serve as an alternative source of raising capital to bank borrowing.

  • The next step in the estimation procedure regresses the log of equity issues against the macro variables, the firm-specific variable and a crisis variable (Table 9). Results from model 5 show that the level of equity financing is determined significantly by real growth and firm-specific factors. Equity issuance is also conditioned significantly by the performance of the stock market (proxied by the lagged value of average Hang Seng dividend yield). The sign on the bond issuance variable is negative but insignificant - confirming the results obtained from model 4.

  • When an interactive crisis and bonds variable is introduced in model 6, it is negative in sign and highly significant. This suggests that a financial crisis adversely impacts on equity issuance - and the bond market seems to be an alternative mode for raising capital during such periods. The coefficients on real growth and Hang Seng dividend yield variables decline while the firm-specific factors become insignificant. This implies that a crisis tends to dampen the appetite for equity placements, after controlling for other macroeconomic and firm-specific factors, but there is some evidence of firms raising funds through bond issues, supporting hypothesis of the bond market as an alternative mode of financing.

  • The crisis variable is further disaggregated into the Mexican crisis of 1994 and the Asian Crisis of 1998. The coefficient on the interacted Mexican crisis variable is negative in sign but only significant at the 10 percent level. This implies that during the Mexican crisis, the corporate bond market served to finance the funding requirements of some firms which would have otherwise engaged in equity financing. For the interacted Asian crisis variable, the coefficient is positive and significant at the 10 percent level. This implies that during the Asian crisis, the bond market did not serve an a financing mechanism to firms.

Table 9.

Simple OLS Regression Results - Financing model

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  • Table 10 shows the results from a similar exercise with the syndicated loan market. The log of syndicated loans issues is regressed against its own lag, real growth, foreign reserve growth, bond issues and the best lending rate. The results are shown below.

Table 10.

Simple OLS Regression Results - Financing model

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  • Syndicated loan issues seem to be highly autoregressive and statistically independent of foreign reserve growth and real income growth. The coefficient on the best lending rate is negative, i.e. a rise in the lending rate leads to a significant reduction in loan issues. The sign on the firm-specific residual is positive and significant, i.e. the higher the perceived credit rating, the higher the amount of loans that were issued. When the interactive crisis variable is introduced, it is positive in sign though not significant, i.e. there is no significant evidence of the bond market substituting for the bank loan market.

Sources of Data

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References

  • Eichengreen, B., Mody, A., (1998), “What Explains Changing Spreads on Emerging Market Debt: Fundamentals or Market Sentiment?, NBER Working Paper, No. 6408, Cambridge.

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    • Export Citation

  • International Monetary Fund, (2001), International Capital Markets: Developments, Prospects, and Policy Issues, Washington . D.C.

  • Hong Kong Monetary Authority, (2001), “Cost-Benefit Analysis of Developing Debt Markets”, HKMAQuarterly Bulletin, November 2001, Hong Kong.

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    • Export Citation

  • Kamin, Steven Kleist, Karsten van (1997), “The Evolution and Determinants of Emerging Market Credit Spreads in the 1990’s, Working Paper, Bank for International Settlements, Basle.

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1

Prepared by Chandima Mendis.

2

Based on the Retail Investors Survey, Securities and Futures Commission, 2000, and Cash Transaction Survey, Hong Kong Exchanges and Clearing Ltd, 2001.

3

“Implied” value of trading for a particular group is determined by multiplying the percentage contribution to market turnover by that type of trade, as obtained from the Hong Kong Exchanges and Clearing Survey, by the total turnover during the period.

4

“Institutional” funds are non-pension, non-retail in nature, i.e. funds from associated companies, fund houses, insurance companies, large corporate clients, etc.

5

Including private client funds and Securities and Futures Commission-authorized retail funds, which cater for individual investors.

6

HKMA Quarterly Bulletin, February 2001, “Hong Kong Dollar Debt Market Developments in 2000”.

7

For a detailed discussion of factors holding back the growth of debt markets and the policy options to support their development, see SM/01/23 (1/26/01).

8

HKMA Quarterly Bulletin, November 2001, “Cost-Benefit Analysis of Developing Debt Markets”

10

Details of the econometric analysis are presented in the Annex.

11

This consists of a dummy variable, taking the value of one for the Latin American Crisis (1983), Mexican Crisis (1994), and Asian Crisis (1998).

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
People’s Republic of China—Hong Kong Special Administrative Region: Selected Issues
Author: International Monetary Fund
Volume/Issue:
Volume 2002: Issue 099
Publisher:
International Monetary Fund
ISBN:
9781451816839
ISSN:
1934-7685
Pages:
85
DOI:
https://doi.org/10.5089/9781451816839.002

Stock market capitalization, 1998–200.

(in US$ billons)

Hong Kong SAR: Main Board.

Total Equity Funds Raised and Number of Newly Listed Companies

Hong Kong SAR: GEM.

Total Equity Funds Raised and Number of Newly Listed Companies

Composition of Main Board, 2001

Main Board Distribution of Trading (2001)

Hong Kong Stock Exchange: Implied value of trading by Investor type.

Mutual Funds-Total assets managed in Hong Kong SAR 2000

Destination of investment by type of Funds

Hong Kong SAR: H-Share.

Market Capitalization and Number of Listed Companies

Syndicated Loans issued to China Borrowers