Title: Financial for Development: Capital markets as a source of finance for development after the Asian cu
1Financial for DevelopmentCapital markets as a
source of finance for development after the Asian
currency crisis
- Prof. Stephen Y. L. Cheung
- Department of Economics Finance
- City University of Hong Kong
2Domestic stock markets in the country, experience
and future prospect
- Impressive GDP growth
- Stock indexes and turnovers have rebound back to
the pre-crisis level
3Real GDP Growth Rate
4Stock Indexes
5Share Turnover
6Market Capitalisation
7Problems
- Hang Seng Index rose by 52
- All Ordinaries Index rose by 22
- Hutchison Whampoa and China Telecom (China
Mobile) have gone up 200 and 550 respectively. - Only a couple of stocks with good names or
Hi-Tech background
8(No Transcript)
9Infrastructure (1)
- Improvement in clearing settlement systems
- Increase system efficiency
- Lower costs
- Enhance systemic risk management
10Infrastructure (2)
- Continuous net settlement
- Reduce risk exposure
- Enhance derivative markets development
11Case study
- Merger of three clearing houses in HK
- Increase efficiency
- T 2 ? T 0 ?
- Goal
- Dematerialized shares
- Straight through processing
- Delivery vs. Payment ( D v P )
12Domestic corporate rating (1)
- Only major corporates have channel to the
international debt markets - International demand
- Participation of international credit rating
agencies
13Domestic Corporate Rating (2)
- Problems
- Family controlled
- Minimal information disclosure
- Bank loan financing
14Domestic corporate rating (3)
- Promote local-based credit rating agency with
creditability - Promote the concept of cheaper financing through
bond market
15Convertible bonds and equity dilution (1)
- Investor preference
- Lack of credit rating
- Right issues are popular
16Convertible bonds and equity dilution (2)
- Right issues are negative signal
- Proper monitoring system
- Improvement in corporate governance practices
17Encouragement of stock holdings (1)
- Improve regulatory framework
- Transparency
- Level playing field
- Accountability of regulators
18Encouragement of stock holdings (2)
- Improve corporate governance
- Information disclosure
- Reduce connected transaction
- Accountability of directors
19Encouragement of stock holdings (3)
- Financial products
- Retirement funds, MPF
- Tracker fund
- Derivative products
20Encouragement of stock holdings (4)
- Growth Enterprise Market
- KOSDAQ in Korea
- On-line trading, mostly retail investor
- Cheaper transaction cost, 0.5 ? 0.1
21KOSDAQ (1)
- On-line trading 45
- Retail investors 95
- Trading volume grew 252 times from January 1998
to November 1999
22KOSDAQ (2)
- Established in July 1996
- 480 listed companies
- Market capitalisation is over 100Trillion KRW
- Index rose by 300 from October 1998
- Average daily trading value increased to 5
trillion KRW from 5,500m KRW at the end of 1998
23Overview of bond market (1)
- Potentials
- High saving rate 30 in Asia
- Invest in fixed income securities of developed
markets - Retirement funds
- Benchmark yield curve reduces credit risk
24Great development potential for bond market (
of GDP 1998 )
25Bond Turnover
26Overview of bond market (2)
- Problems
- Liquidity
- Active in the OTC
- Widen the investor base, 80 held by financial
institutions - Derivative instruments
- Infrastructure enhancement
27Overview of bond market (3)
- Solutions
- Listed on the exchange
- infrastructure enhancement
- US clearing system
- Promotion of local credit rating agencies
- Retirement funds
- Education
- Retail investors
- Intermediaries
28Alliances with developed markets
- Complementary - time zone and technology
- Developed derivative market
- Lower IT development cost
- Cross-listing
29Examples
- Shares of 7 Nasdaq companies began trading in HK
on 31 May 2000 - Welcome Euro shares to be traded in HK
- HSBC already traded in NY, HK and London
- SIMEX - CME - MATIF
30Exchange Alliance - Nasdaq 7 (1)
- Shares of 7 companies listed on the Nasdaq will
be traded in SEHK in Q1 of 2000 - If 5 of the turnover is carried out in Hong
Kong, turnover of SEHK would have increased by
about 30
31Exchange Alliance - Nasdaq 7 (2)
32Alliances with regional exchange
- Weak linkage
- Different regulatory framework
- Different cultural background
- Dispute between SIMEX and HKFE
- Futures contracts on HK index
33Potentials (1)
- Development of Asian index
- Mutually owned by regional exchange
- Same trading rule
- Same regulatory framework
- Provide benchmark for fund managers
34Potential Asian Alliance
- Market cap of Asia 65 is more than 3 times that
of the SEHK at end-1999
35Potentials (2)
- Diversification opportunity for regional
investors - Cross listing of stock across region
- Country funds, listed on other regional markets
36Potential (3)
- Lower IT development cost
- Enhance the depth and breath of regional exchange
37Asian online broking
38Challenges
- Intermediaries need to re-evaluate their own
roles in a CYBER world - Global investors in a hi-tech world view
different financial markets as one single market - Provision of an one-stop high value added
financial supermarket ( I.e. the linking up of
different financial markets )
39Challenges
- Provision of an efficient and low risk settlement
platform ( I.e. the linking up of trading and
settlement systems ) - Provision of a 24-hour trading environment ( I.e.
the linking up of different financial centres )
40