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List of Contents the Year 2001 in Review Major Events Of List of Contents The year 2001 in review Major events of Hong Kong securities market 2001 Market highlights Cash market - Main board Cash market - Growth enterprises market (GEM) Derivatives market Clearing statistics Exchange participants The investing community Hong Kong securities market historical events Appendices The Year 2001 in Review The Year THE YEAR 2001 IN REVIEW With the US economy entering a recession, the Hong Kong economy continued to slow down during the year 2001. The latest economic forecast for Hong Kong expected zero real GDP growth for the year. Labour market conditions continued to worsen with the economic downturn and corporate downsizing. The unemployment rate surged to 6.1% in December 2001. The Composite Consumer Price Index continued to decline, decreasing by 3.6% in the year. The Hong Kong stock and future markets weakened overall during the year. The Hang Seng Index ended the year at 11,397, 24% below the 2000 closing. The average daily turnover of the stock market (Main Board and GEM) during the year was HK$8.1 billion. With a total market capitalization of HK$3,946.3 billion (Main Board and GEM) as at the end of 2001, Hong Kong was the 10th largest stock exchange in the world and the second in Asia. Following the formation and listing of HKEx in 2000, the Securities and Futures Commission (SFC) and HKEx signed a Memorandum of Understanding (MOU) in February 2001, which formalised the SFC’s oversight of HKEx, the supervision of Exchange participants and market surveillance. HKEx’s year-end closing price was HK$11.85 compared to HK$17.9 in 2000. The market capitalization of the shares of HKEx was HK$12.3 billion and its P/E ratio (based on 2000 earnings) was 14.03 times compared to HK$18.6 billion and 35.8 times as at the end of 2000. During the year, HKEx entered into a strategic initiative with the Sydney Futures Exchange to explore the development of a range of new derivatives trading and clearing services for the Asia exchange-traded and over-the-counter market places. Discussions with New York Stock Exchange (NYSE) took place on a possible earlier linkage between NYSE, HKEx and the Toronto Stock Exchange in the Global Equity Market partnership. HKEx also signed an agreement with the Shanghai Stock Exchange and the Shenzhen Stock Exchange for mutual exchange of market and listed company information. A China Stock Market website, integrated in the existing websites of HKEx, the Shanghai and Shenzhen stock exchanges, was introduced in November. Through this cooperation, all three exchanges will be able to provide investors with comprehensive data on the three securities markets at a centralised location. Memoranda of Understanding were signed with the Stock Exchange of Thailand and the Kuala Lumpur Stock Exchange respectively on the exchange of market information. STOCK MARKET Market development The introduction of the Third Generation Automatic Order Matching and Execution System (AMS/3) in October 2000 marked the beginning of a new trading era. Following the successful launch of the AMS/3, HKEx implemented new functions in 2001, including new orders types - Enhanced Limit Order and Special Limit Order - and revised trading parameters. In February, HKEx introduced the Order Routing System (ORS), an open platform which can provide multi-channel and multi- vendor connectivity. This facilitates trading through electronic channels such as the Internet and mobile phones. Trading requests placed through an electronic channel connected to the ORS can be sent to the Exchange Participants’ trading facilities for approval and submission to AMS/3 for execution. Since 1 September 2001, HKEx has received a Trading Fee of 0.005 per cent per side of the consideration for every transaction. The Trading Fee replaced the previous 0.005 per cent portion of the Transaction Levy. A consultation paper on extending the trading hours of the stock and futures markets was published to seek public comments. 1 HKEx Fact Book 2001 The Year 2001 in Review The Year Main Board - Equities Thirty-one companies were newly listed on the Main Board during the year 2001. They raised HK$21.6 billion of capital in total. As at the end of the December 2001, there were 756 companies listed on the Main Board with a total market capitalization of HK$3,885.3 billion. HKEx amended the Main Board Listing Rules to require listed issuers to submit a soft copy of announcements to the Exchange for publication on HKEx’s website, effective from 21 May 2001. The issuers are still required to publish paid announcements in the newspapers until further notice. A new Internet-based e-submission system is under development as an alternative medium for issuers. It received positive feedback from potential users in the initial trial period. The Hong Kong stock market experienced a bearish year in 2001, reflecting the sluggish performance of the global stock market. Upon an unexpected cut in US interest rate in January, the Hang Seng Index rose at the beginning of 2001. Expectations for further interest cuts pushed the Hang Seng Index to a record high of 16,164 in February. The market lost momentum soon after, following the slides in telecommication and technology shares worldwide and with the prospect of a protracted US economic slow-down and widespread anxiety in the global financial markets. The September 11th incident dealt a further blow to sentiment. The stock market dropped sharply pushing the index down to the lowest at 8,934 in September. The Hang Seng Index and All Ordinaries Index closed the year at 11,397 and 4,885 respectively, representing a decrease of 24% and 20% during the year. The Hang Seng China Enterprise Index and Hang Seng China-Affiliated Corporations Index, which track H-share and red-chip companies respectively, declined 8.2% and 18.3% during the year. All sectors of the All Ordinaries Index recorded declines in 2001, with Consolidated Enterprises down 29.1%, Finance down 17.8%, Hotels down 18.7%, Industrials down 0.8%, Properties down 14.7% and Utilities down 6.6%. Main Board - Warrants Thirty-one equity warrants and 181 derivative warrants were newly listed on the Main Board in 2001. The total number of warrants listed on the Main Board was 96 as at the end of 2001, compared to 291 in 2000. The turnover of warrants for 2001 was HK$108.2 billion, representing a decrease of 35% compared with 2000’s HK$167.4 billion. Main Board - Debt securities Twenty-one new debt securities were listed on the Main Board in 2001, compared with 20 in 2000. The total number of debt securities decreased to 195 at the end of December 2001. Trading remained inactive with a year total of HK$38 million. Main Board - Unit trusts and mutual funds There were 22 unit trusts listed on the Main Board as at the end of December 2001, compared to 21 and 23 in 2000 and 1999 respectively. The total trading turnover of unit trusts listed on the Main Board (including the Tracker Fund) increased to HK$20.7 billion in 2001 compared to HK$20 billion in 2000 and HK$12.5 million in 1999. Growth Enterprise Market (GEM) The Growth Enterprise Market (GEM) commenced operations on 15 November 1999 to provide capital formation facilities for growth companies that are not qualified to list on the Main Board. 57 companies were newly listed during the year 2001. In total, they raised HK$4.1 billion of new capital. GEM’s average daily turnover value in 2001 was HK$162 million. As of the end of 2001, 111 companies were listed on the GEM with a total market value of HK$61.0 billion; the total number of warrants listed was three and the total turnover for the year was HK$2.6 million. 2 HKEx Fact Book 2001 The Year 2001 in Review The Year After a review of certain changes to the GEM Listing Rules in 2000, the proposed rule amendments came into effect on 1 October 2001. Key areas of amendment include the minimum track record period, the prohibition on share issues within six months of listing, the definition of initial management shareholders, the moratorium period for the initial management shareholders, the disposal of shares by initial management shareholders, the limit on the shares over which companies may grant share options, the offering mechanism and the minimum of percentage of securities to be in public hands. Trading-only market After the successful launch of the Tracker Fund of Hong Kong (TraHK) in the end of 1999, HKEx developed a market structure for Exchange Traded Funds (ETF) in May 2001. ETFs are similar to open-ended mutual funds or unit trusts, but they are listed or traded on stock exchanges. Investors can buy or sell ETF through brokers like ordinary stocks during trading hours. The first two regional ETF, iShares MSCI Taiwan Index Fund and iShare MSCI South Korea Index Fund, commenced trading on 2 May 2001. They were introduced under a “trading only” arrangement. Trading hours for these two funds are 10:00 to 16:00 - with no lunch break. The trading and settlement currency is US Dollars. Up to the end of 2001, there were two iShares traded with a total turnover of US$13.2 million (HK$102.7 million). The total number of Nasdaq stocks traded under the Trading-only Market was 7 as at the end of 2001. The turnover of Nasdaq stocks for 2001 was HK$118million, representing a decrease of 57% compared with 2000’s HK$272 million.
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