List of Contents The year 2002 in review Major events of Hong Kong securities market 2002 Market highlights Cash market - Main board Cash market - Growth enterprise market (GEM) Derivatives market Clearing statistics Exchange participants The investing community Hong Kong stock market historical events Appendices The Year 2002 in Review The Year The Year 2002 in Review The Hong Kong economy remained weak in 2002 but trade figures began to turn around in the second half of the year. Benefiting from the weakening US dollar and strong demand in the Mainland of China, Hong Kong’s total exports regained double-digit growth over a year earlier in the third quarter of 2002. The seasonally adjusted unemployment rate also fell from its historical peak of 7.8% in July 2002 to 7.2% in December 2002. However, the domestic sector remained sluggish in both investment and consumer spending. The latest economic forecast suggests a 2% growth in real terms of GDP and a 3% decline in the Composite Consumer Price Index for 2002. The trading performance of the Hong Kong securities and futures markets further weakened during the year. Hang Seng Index fell 18.2% from the previous year to end at 9,321.29. The average daily turnover of the Main Board also declined to HK$6,474 million, 19.3% less than that in 2001. The GEM Index ended at 110.4 at end of December 2002, representing a decrease of 44.6% from the previous year. The average daily turnover of the GEM improved slightly to HK$178 million in 2002, an increase of 9.9% from 2001. The Hong Kong derivatives market achieved a 3% growth during 2002, with an average turnover of 45,018 contracts per trading day. The year 2002 was however a good year for the Hong Kong stock market in new listings. There were 60 and 57 newly listed companies for the Main Board and GEM markets respectively, with total funds raised amounted to HK$52 billion. With a market capitalisation of HK$3,611 billion or US$463 billion (Main Board and GEM), Hong Kong was the 10th largest territorial stock market in the world and the second in Asia. STOCK MARKET Market development HKEx further strengthened the AMS/3 trading system. In March, Stock Exchange Participants were allowed to increase the order throughput or throttle rate of their Open Gateway to AMS/3 on a user-pay basis. They could also install additional Open Gateways at their own cost. On 25 March, HKEx introduced a 30-minute pre-opening session, which starts at 9:30 am every trading day. An index basket order trading mechanism was provided during the continuous trading session. The first and second phases of a new generation of the central clearing system, CCASS/3, were successfully rolled out in May and December 2002 respectively. The enhanced system supports multiple market clearing and different settlement cycles. The last phase involving the introduction of a Participant Gateway will be launched in the first quarter of 2003. In July, HKEx consulted the market on the concept of Third Party Clearing. The proposed market model would give an option to stockbrokers to outsource their stock clearing and settlement operations to a designated General Clearing Participant. In December 2002, the Steering Committee on the Enhancement of Financial Infrastructure II (SCEFI II) released its report, outlining recommendations for the improvement of Hong Kong’s financial infrastructure. A high-level forum was established with participation of the Government, the SFC, the Hong Kong Monetary Authority and HKEx to coordinate the implementation of these recommendations. 1 HKEx Fact Book 2002 The Year 2002 in Review The Year Main Board – Equities Sixty companies were newly listed on the Main Board during 2002, the highest since 1997. Among them, 4 were China- incorporated enterprises. In aggregate, they raised HK$45 billion of capital. At the end of 2002, there were 812 companies listed on the Main Board, including 54 China-incorporated companies and 10 foreign companies. The Main Board companies had a total market capitalisation of HK$3,559 billion. To provide a simpler administrative framework with effective checks and balances, HKEx proposed new structures for disciplinary and non-disciplinary listing matters during 2002. New rules were also proposed to strengthen corporate governance in the area of shareholders’ rights, practices of listed company directors, corporate reporting and information disclosure. HKEx also introduced rules changes during the year to allow distribution of corporate communications to shareholders via electronic means and the listing of a wider range of structured products including equity linked instruments. A consultation exercise on listing eligibility and cancellation during the year led to market turbulence and subsequent controversy over the roles and responsibilities of market institutions and the Government. An independent panel of inquiry, after a review of the incident, recommended a review of the operations of the three-tier market structure and improvements on market consultation and investor education. The Hong Kong stock market had another year of decline in 2002. The market moved downward for most of the time during the year, except for a short rise during April/May. The disappointing market performance was the result of a sluggish local economy and a weak global investment market troubled by anti-terrorism acts and corporate scandals in the US. The weakening US dollar and the increasing likelihood of a Gulf war also damaged investor confidence. The Hang Seng Index and All Ordinaries Index closed at 9,321.29 and 4,113.06, representing a decrease of 18.2% and 15.8% from the end of 2001. It was the third consecutive year of decline, also the longest downside period since 1960. The Hang Seng China- Affiliated Corporations Index, which tracks red-chip performance, fell 24.6% during the year. However, the H-share index (Hang Seng China Enterprises Index) recorded an increase of 13.2% in 2002. Only three sectors of All Ordinaries Index recorded rises in 2002, namely Miscellaneous (+18.6%), Industrials (+4.89%) and Utilities (+1.83%). The biggest decliner was Consolidated Enterprises (-28.42%), followed by Properties (-27.1%), Finance (-7%), and Hotels (-4.52%). A shrinking trading volume accompanied the index decline in 2002, with the average daily turnover dropping to HK$6,474 million, a decrease of 19.3% from 2001. Main Board – Warrants The warrant market sharply expanded in 2002, due to the introduction of liquidity providers in January and the reduction of derivative warrant listing fees in April. There were 27 equity warrants and 644 derivative warrants newly listed during the period. The total number of warrants at the end of the year reached 414 (67 equity warrants and 347 derivative warrants), representing an increase of 331% from 96 in 2001 but still below the peak of 533 in 1997. The turnover of warrants for 2002 was HK$114.5 billion, an increase of 6% from HK$108.2 billion in 2001. Main Board – Debt Securities The debt securities market further contracted during 2002. Despite the 18 new listings, the number of debt securities listed on the exchange decreased from 2001’s 195 to 165 at the end of 2002. Trading remained minimal with a year total of HK$25.5 million. 2 HKEx Fact Book 2002 The Year 2002 in Review The Year Main Board – Unit Trusts and Mutual Funds At the end of 2002, there were 9 unit trusts/mutual funds listed on the exchange compared to 22 in 2001. The turnover of unit trusts (almost entirely the Tracker Fund) amounted to HK$12.8 billion in 2002 compared to HK$20.7 billion in 2001 and HK$20 billion in 2000. Growth Enterprises Market (GEM) Fifty-seven companies were newly listed on the GEM in 2002, of which 12 were China-incorporated enterprises, bringing the total number of listed companies to 166. The newly listed companies raised total capital of HK$7 billion. Average daily turnover of the GEM for 2002 was HK$178 million, compared to HK$162 million for the previous year. As at end of 2002, the total market capitalisation of the GEM was HK$52.2 billion, a decrease of 14.3% of the 2001 figure. Other than the 166 ordinary shares, there were four warrants listed on GEM at the end of 2002. The Growth Enterprise Index fell 44.6% in 2002 and closed the year at 110.4. Equity Linked Instruments (ELI) In 2002, HKEx amended its Listing Rules to facilitate the listing of more structured products, including equity linked instruments (ELI). ELI combine the features of a fixed income instrument and a stock option. Its performance is linked to the market performance of an underlying equity security. As at the end of 2002, there were 11 ELI listed on the exchange. The total turnover value of ELI for 2002 was HK$334 million. Trading-only market As at the end of 2002, there were two iShares and 7 Nasdaq stocks traded on the Trading-only Market. The turnover of iShares and the 7 Nasdaq stocks in 2002 were HK$80.3 million and HK$40.9 million respectively, compared to HK$102.7 million and HK$118 million in 2001. DERIVATIVES MARKET Market development HKEx introduced two key derivatives products in 2002 - Dow Jones Industrial Average (DJIA) Futures (6 May) and Mini-Hang Seng Index (Mini-HSI) Options (18 November). The DJIA is a widely recognised benchmark for the performance of the US stock market. The introduction of DJIA Futures in Hong Kong enabled investors to respond quickly to corporate announcements and other market events before and after the regular US trading hours.