1. The development of the stock market in Hong Kong Group 4

2. Group member Leung Ka Kit 033132 Sze Siu Fung033134 Chan Chi O033143 Chu Ming Sun033151 Wu Kai Sum033152

3. Agenda 1.A comparison of Stock Market between Hong Kong and Japan 2.The existing problems of Hong Kong Stock Market 3.How the Hong Kong Stock Market improve from correcting its disadvantages 4.Recommendation

4. 1. A comparison of Stock Market between Hong Kong and Japan

5. Both are top stock market in Asia Have some same characteristic

6. Many index to indicate in both stock markets In Hong Kong: Hang Seng Index, HSI-Finance, HSI- Utilities, HSI-properties and HSI-Commerce & Industry

7. In Japan

8. There are many products in both Securities markets and Derivatives Markets Both of the government in Hong Kong and Japan has intervened in their own market

9. Also, there are some differences The open degree of stock market in Hong Kong are comparatively greater Hong Kong now mostly relies on China investment

10. The capital in Japan stock market is more than Hong Kong Stock Market.

11. 2. The existing problems of Hong Kong Stock Market

12. 1. Government's intervention Hong Kong government intervene the local stock and futures markets on August 1998 To protect the currency and to counter speculative "double market play" Distorted pricing mechanism Competitive advantage of the world’s “most free” economy did not longer exist

13. 2. Erode Confidence of independence in Hong Kong Earlier request to Beijing to reconsider a ruling by its highest law court Erode the “high self-ruling” spirit in 1 country 2 system Investors may think the government's word was a one-off

14. 3. Ambiguous of GEM listing rule Growth Enterprise Market (GEM) was set up to let companies have potential strategically growth to raise fund. Different rules from Main board lead to higher risk: GEM did not require any financial standards and profit. Difficult to increase the confidence of investors to the GEM listed companies.

15. 4. HK finance too dependent on China China is both Hong Kong's strongest suit and its greatest threat 90% of Hong Kong's finance is related to Mainland China (e.g. Phoenix Satellite Television Hold. Ltd. (8058) in GEM board, Chinese Construction Bank (0939) in main board )

16. 5. Entry to WTO of Mainland China Entry of World Trade Organization (WTO) of China changes Hong Kong’s position of middleman. China will open the requirement of trade (E.g. lower tariffs-- lower production cost) Booster direct trade and investment between China and outside investor so diminish trading business in Hong Kong. Finance would possibly be affected

17. 6. Rapid increase on prime rate. Rapid increase on prime rate May distract the intention on borrowing money for investment. Saving deposit had not changed distract people putting money in the bank Short run high prime rate may distract investment activity Long run investment in Hong Kong stock exchange would possibly decrease.

18. 7. No delisting system for penny stock Activities of penny stock abusive corporate conduct merge the stock and offer rights issues to investor then use the sum to cover the directors' remuneration Other markets have system to tackle this E.g. CSRC in China, Nasdaq in USA, Existence of penny stock-riddled in a market, turn the market bad Lower the trading capacity, goodwill of the stock exchange market thus distract the listing of good quality companies

19. 3. How the Hong Kong Stock Market improve from correcting its disadvantages

20. Ways to improve 1.The government’s intervention in the Hong Kong Stock Market  Need to claim that the government will not intervene 2.Confidence in its independence has been eroded  Clarify the independence of Hong Kong

21. Ways to improve 3.The listing rule of Growth Enterprise Market is ambiguous  Can set a lower limited of financial standard 4.The stock market in Hong Kong is too dependent on China investment  attract more others investment rather than China’s investor  relax more rules for the foreigners

22. Ways to improve 5.The entry to World Trade Organization of Mainland China  Need to show more comparative advantages in Hong Kong 6.The rapid increase on prime rate  Reduce the tax rate to make people have more income to invest

23. 4. Recommendation

24. Maintain Advantages Strengthening the system of Hong Kong Stock Market  Computer system breakdown occasionally  Prevent error to happen again  Establish the reliable system Source: HKEx and Takungpao 12th November 2005

25. Maintain Advantages To understand the Asia economy  e.g Japan, Singapore  Amend failure

26. Maintain Advantages Attract international investors  Invest in China market  Hong Kong as a middleman  Simple taxation system  Maintain the freest economy  Promote HK stock market to abroad Source: Economic Freedom of the World: 2005 Annual Report

27. Recommendation Being a financial centre of CHINA Provide supervision and infrastructure supports to china enterprise Assist Chinese enterprises to enter the global market and channeling global funds to Chinese market

28. Recommendation Help Mainland enterprises to achieve international standards Attract Mainland enterprises to list in HK Raise the market depth, quality, supervision and strengthen investors’ confidence

29. Recommendation Build up a good image through Promotion Attract international financial institutions enter to Hong Kong financial market. Encourage foreign enterprises to do investment in Hong Kong Get foreign capital to further deepen and broaden Hong Kong financial market.

30. Recommendation Human resource is the major factor of development Needs talented people in financial services to adopt such strategies Should put a great effort on training and attract talented people to work in HK

31. Conclusion Get a closer economic co- operation with mainland China will help our stock market to grow stronger day by day We deeply believe Hong Kong stock market has a bright future

32. MC Question

33. Multiple Choice 1.According to “Economic Freedom of the World: 2005 Annual Report”, the most freest economic in the world is: A. Singapore B. United states of America C. Hong Kong D. Switzerland

34. The Answer is

35. Multiple Choice 2.Which factor can affect the investors to invest in Hong Kong? A. Simple taxation system B. Delisting system for the penny stock C. Government's intervention D. attract talented people to work in HK

36. The Answer is

37. Multiple Choice 3.Which is the main index in Japan? A. TOPIX 100 B. TOPIX Core 30 C. Nikkei 225 index D. TOPIX Large 70

38. The Answer is

39. END