Foreign currency reserves at US$136.3 billion
 Hong Kong’s foreign currency reserves stood at US$136.3 billion at end-February, according to the Hong Kong Monetary Authority, up from US$133.7 billion a month earlier.
Including unsettled forward contracts, the foreign currency reserve assets at end-February also stood at US$136.3 billion, compared to US$133.7 billion at end-January.
Hong Kong is the world’s eighth-largest holder of foreign currency reserves, after mainland China, Japan, Russia, Taiwan, South Korea, India and Singapore.
February’s reserves represent more than six times the currency in circulation, or approximately 37% of Hong Kong dollar M3.
Market cap hits all-time high
Hong Kong’s stock market capitalization reached an all-time high of US$1.79 trillion on February 22, according to Hong Kong Exchanges and Clearing.
A turnover of US$10.36 billion in 639,520 trades was recorded on February 28, the highest ever. The same day saw 54,579 Hang Seng Index options contracts and 7,954 stock futures contracts transactions — both daily records.
At the end of February, the total market capitalization was US$1.69 trillion, up 44% compared to a year earlier. The number of listed companies also rose, to 1,176, a 3.25% increase.
The market capitalization of Mainland enterprises accounted for 49.2% of the total, up from 41.3% for the same period last year. Their turnover value rose to 63.1% from 57.2%.
The Hang Seng Index drifted above 20,000 for most of February, but dipped sharply in the last two days of the month, along with the plunge in Mainland stock markets and the ensuing jitters in other overseas stock markets.
The index closed the month at 19,652. Trading activity remained hectic, averaging US$6.51 billion.
Greiner appointed COO of HKEx
The Securities and Futures Commission approved on February 16 the appointment of Gerald Greiner as Chief Operating Officer of Hong Kong Exchanges and Clearing and as Chief Executive of The Stock Exchange of Hong Kong. The appointments took effect the same day.
Exchange Fund totals US$157.44 billion
Assets of the Hong Kong Exchange Fund totaled US$157.44 billion on January 31. This is US$6.58 billion more than the month before, according to the Hong Kong Monetary Authority (HKMA).
Foreign currency assets grew US$2.57 billion, and Hong Kong dollar assets increased US$4.01 billion.
The rise in foreign currency assets is mainly due to increases in securities purchased but settled the next month, Certificates of Indebtedness and income from foreign currency assets. The rise in Hong Kong dollar assets is mainly due to placements received from fiscal reserves, which were partially offset by a decrease in bank borrowings.
The Currency Board Account shows the monetary base at end-January was US$38.46 billion, up 0.7% from end-December. The rise is mainly due to increases in Certificates of Indebtedness and government-issued currency notes, which were partially offset by a decrease in the market value of Exchange Fund bills and notes outstanding.
Backing assets fell 0.9% to US$42.24 billion. The decrease is mainly attributable to the transfer of assets out of the Backing Portfolio to the Investment Portfolio, in accordance with the arrangement approved by the Exchange Fund Advisory Committee. The decline was partially offset by the issuance of Certificates of Indebtedness and government-issued currency notes in the monetary base, interest from investments and revaluation gains.
The backing ratio fell to 109.83% at end-January from 111.65% a month earlier.
Dollar weakens against U.S. currency
 The Hong Kong dollar weakened further against the U.S. dollar in February. The Hong Kong dollar tracked fairly closely the movement of the U.S. dollar against other currencies. It continued its steady depreciation against the renminbi, but stayed roughly level against other major Asian currencies. Some renewed weakening against the euro was seen in the month. On average, the Hong Kong dollar depreciated further against the currencies of its trading partners, falling 0.4% in February compared to the previous month, or down 4.2% on a year-on-year comparison.
Interest rates edge higher
 The Hong Kong Interbank Offered Rate (HIBOR) edged higher across all tenures. The three-month HIBOR edged higher in February, ending 4.19% for the month, compared to 4.07% in end-January. With the U.S. interest rates remaining unchanged in February, the interest rate gap between the Hong Kong and U.S. dollars narrowed during the month to 119 in February, from an average of 136 percentage points in January.
Government records US$4.75 billion surplus
The Hong Kong Special Administrative Region Government (HKSARG) had a surplus of US$4.75 billion in January, thereby bringing a net surplus of US$5.5 billion for the period April 2006–January 2007. Expenditures for the 10-month period amounted to US$24.19 billion; revenues brought US$29.69 billion.
An HKSARG spokesman said the surplus in January is mainly due to the collection of profits tax and salaries tax.
The territory’s fiscal reserves stood at US$45.33 billion on January 31.
New retail bond issue offered
The Hong Kong Mortgage Corporation (HKMC) launched a new retail bond issue with four series of notes, which were opened for subscription March 6-13.
The issue includes two series of Hong Kong dollar notes of two- and one-year maturities, extendable semi-annually until March 21, 2011, and two series of U.S. dollar notes of two- and six-year maturities.
On March 5, the HKMC signed an agreement with the three underwriting banks — the Bank of China (Hong Kong), HSBC and Standard Chartered Bank (Hong Kong) — for a total underwriting amount of US$76.92 million with respect to the two-year Hong Kong dollar notes. It also appointed 17 banks from its dealer group as placing banks to distribute the issue to retail investors.
The placing banks also will perform the role of market makers for the issue to facilitate transactions in the secondary market. This offering mechanism through placing banks was first introduced by the HKMC in 2001, and has proven highly effective in marketing bonds to retail investors. So far, the HKMC has issued nine retail bond issues totaling US$1.53 billion.
HKMC retail bonds provide investors with the choice of an additional investment product to achieve a balanced investment portfolio and stable interest income. With this issue, the HKMC is launching its first Hong Kong Interbank Offered Rate-linked notes, which are popular among the private banking and institutional markets. It is also the first time that a U.S. dollar zero-coupon bond product has been offered to the Hong Kong retail public.
HKMC Executive Director Peter Pang said the March 5 issue is the agency’s first since receiving a ratings upgrade from Moody’s in October — Aaa for domestic currency debt and Aa1 for foreign currency debt. “The top credit rating puts the corporation in a very strong position to play a more active and strategic role in promoting the development of the debt and securitization markets in Hong Kong, while creating a win-win situation for the investors, the placing banks and the corporation,” he said.
HKMC Chief Executive Officer James H. Lau Jr. said, “The HKMC will continue with its product innovation to meet the needs of retail bond investors by providing a wider range of debt investment instruments.”
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