A favourable geographical position, bridging the time gap between North America and Europe, strong links with the Mainland and other economies in South-East Asia and excellent communications with the rest of the world, the high respect for the rule of law, a level playing field as well as a sound regulatory regime have all helped Hong Kong develop into both a leading international financial centre in the region and the premier capital formation centre for the Mainland. The absence of any restrictions on capital flows into and out of Hong Kong is another important strength.

    Hong Kong's financial markets are characterised by a high degree of liquidity. They operate under effective and transparent regulation which fully meets international standards. A highly educated workforce and ease of entry for professionals from outside Hong Kong further contribute to the development of financial markets in Hong Kong.

    Hong Kong has a very strong presence of international financial institutions. At year-end, there were 121 foreign-owned licensed banks. Of the world's top 100 banks, 73 have operations in Hong Kong. Apart from licensed banks, these foreign institutions operate as restricted licence banks and deposit-taking companies through their subsidiaries, related companies or branches in Hong Kong. A further 94 foreign banks have local representative offices.

    The interbank money market is well established. Wholesale deposits are traded actively among local authorised institutions (AIs), and between local and overseas institutions, with an average daily turnover of $172 billion in 2002.

    Hong Kong also has a mature and active foreign exchange market, which forms an integral part of the global market. The link with overseas centres enables foreign exchange dealings to continue 24 hours a day with the rest of the world. The last triennial survey coordinated by the Bank for International Settlements (BIS) in April 2001 shows that the daily average foreign exchange turnover in Hong Kong is US$66.8 billion, which represents 4 per cent of the world's total transactions and makes Hong Kong the world's seventh largest foreign exchange market.

    With a total market capitalisation of $3,611.3 billion as at year-end, the Hong Kong stock market ranked 10th in the world and third in Asia, following Japan and the Mainland (Shanghai and Shenzhen combined)¹. The daily turnover averaged $6.7 billion (including $178 million on the Growth Enterprise Market) in 2002. At year-end, 978 public companies (including 166 on the Growth Enterprise Market) were listed on the Stock Exchange of Hong Kong Limited (SEHK), a wholly-owned subsidiary of the Hong Kong Exchanges and Clearing Limited (HKEx). The 117 (including 57 on the Growth Enterprise Market) newly-listed companies raised a total of $52.0 billion from initial public offerings (of which $7.0 billion was raised in the Growth Enterprise Market). Besides new share issues, funds were also raised in the secondary market, with a total amount of $58.5 billion. Funds raised in H-shares and red-chips markets amounted to $70.8 billion, some 64 per cent of the total funds raised in the Hong Kong market during the year.

    As regards stock options, contracts in respect of a total of 33 stocks were traded in the market by year-end. The average daily turnover of stock options contracts was 15 203 in 2002.

    The average daily turnover of Hang Seng Index Futures and Mini-HSI Futures traded on the Hong Kong Futures Exchange (HKFE) increased from 18 220 contracts and 3 188 contracts in 2001 to 19 602 contracts and 4 522 contracts in 2002, respectively, representing increases of 7.6 per cent and 42 per cent. The turnover of Hang Seng Index Options also increased to 4 369 contracts in 2002, compared with 2 965 in 2001, representing an increase of 47 per cent. Besides Index futures and options, the HKFE also traded 32 stock futures contracts. Following the success of the Mini-HSI Futures, the Mini-HSI Options were launched on November 18.

    The Hong Kong fund industry is characterised by its strong international flavour, both in terms of the presence of global fund managers and authorised funds. In a survey conducted by the Securities and Futures Commission (SFC) in 2002, 172 intermediaries registered with the commission and exempt persons declared their primary business as fund management — managing portfolios and/or giving advice on investment. The total assets under management by the portfolio managers amounted to $1,484 billion (US$190.3 billion)² at the end of 2001.

    The number of authorised unit trusts and mutual funds increased to 1 906 at the end of 2002 (excluding Mandatory Provident Fund-related unit trusts), compared with 1 893 at the end of 2001.

    Hong Kong operates one of the most active physical gold markets in the world. Spot gold can be traded through two closely related yet independent markets in the city — the Chinese Gold and Silver Exchange Society and the Loco-London gold market.

    The society, established in 1910, provides trading of both tael bars and kilo bars in Hong Kong dollars³. Prices closely follow those in the other major gold markets in London, Zurich and New York. Loco-London gold quotation is made in US dollars per troy ounce of gold.

    Hong Kong continues to be one of the most open insurance centres in the world. Among the 195 authorised insurers at year-end, 99 were insurers from 25 overseas countries or the Mainland. Eleven of the world's top 20 insurers are authorised to carry out insurance business in Hong Kong either directly or through a group company. There are 27 professional reinsurers, including most of the top reinsurers in the world. Gross premium income in 2001 was $76.3 billion, approximately 5.9 per cent of Hong Kong's Gross Domestic Product (GDP).