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Speech by SFST at Investor Conference in Kuala Lumpur (English only)

    Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the Investor Conference in Kuala Lumpur today (January 9):

Dato' Nik Din, distinguished guests, ladies and gentlemen,

     It is my great pleasure to join this Investor Conference today here in Kuala Lumpur to share with you some of the latest developments in Hong Kong, which I believe would be of interest and relevance to the investment community here. I would like to thank the OSK Group and the Hong Kong Exchanges and Clearing Limited for inviting me.

     Since July 21, 2005, Bank Negara Malaysia has partially lifted capital controls on selected classes of fund mangers to invest up to 30% of their assets overseas. With this relaxation, it is roughly estimated that some RM 220 billion, that is, around US$58 billion could be invested overseas. No doubt the very experienced fund managers in Malaysia would have a pretty good idea of the investment opportunities available for your choice. As you are in this process of choosing and picking, let me share with you Hong Kong's favourable environment for investment, its premier position as an international financial centre and a world-class asset management centre, to facilitate your decision on where to invest.  

Overview of the Hong Kong capital market

     First, let me give you an overview of Hong Kong's stock market. Hong Kong has a large and deep stock market that attracts funds from all over Asia and other parts of the world. In 2005, our stock market experienced an impressive growth on many fronts. As at end December 2005, the Hong Kong stock market ranked 8th worldwide and 2nd in Asia. Our stock market staged a robust performance last year, with market turnover, IPO equity funds raised and total market capitalisation all hitting record highs. In 2005, our total market turnover set an annual turnover record of HK$4,520 billion, that is, around US$579 billion. The total market capitalisation reached US$1,049 billion, up some 20% compared with that at end-2004. In 2005, our stock market altogether raised US$37.8 billion, ranking 4th worldwide and 1st in Asia.

     In addition, our real estate investment trust (REIT) market experienced very promising development in 2005. The successful listing of Link REIT, being the largest Initial Public Offering of REIT in the world, was certainly a milestone in Hong Kong's REIT market development. The IPO attracted a total subscription value of more than US$38.5 billion, which demonstrated the strong fund-raising capacity of Hong Kong's capital market. The introduction of new investment products such as REITs has deepened and diversified the Hong Kong financial market and enhanced the attraction of Hong Kong as an international financial centre.  

Hong Kong as a world-class asset management centre

     Among the growing financial businesses, we see a huge potential in further developing Hong Kong's asset management industry to which the Hong Kong Government attaches great importance. The high savings rate in Asia has been helping to fuel the impetus for the growth of asset management industry in the region. As an international financial centre situated at the heart of Asia, with Mainland China as our hinterland, Hong Kong is uniquely positioned to tap into these savings and further develop into a world class asset management centre.  

     Hong Kong's development as an international asset management centre is premised on a number of fundamental strengths, including:

* rule of law supported by an independent judiciary;

* a well-established financial infrastructure;

* a robust and effective regulatory regime;

* a rich pool of talent;

* a stable currency;

* non-existence of currency control;

* free flow of capital; and

* a low and simple tax regime.

     On top of these, we are also one of the most open economies and our system is well recognised to be fair, advanced, efficient and transparent. Indeed, we have been ranked by the Heritage Foundation as the world's freest economy for the 12th consecutive year. Recently, by successfully hosting the 6th Ministerial Conference of the World Trade Organisation, Hong Kong has again vividly demonstrated to the international community that we are indeed a world-class international city. Hong Kong's unique strengths have much appeal for international investors.  In 2004, Hong Kong's fund management business amounted to US$464 billion, of which US$291 billion or 63% were sourced from overseas investors. The significant inflow of foreign funds reflects the high attractiveness of our financial markets to international fund managers. In addition, more than 80 international fund houses from the US, the UK, Japan, Singapore, Switzerland, France and other parts of the world have set up operations in Hong Kong, casting a vote of confidence in Hong Kong's asset management industry.

     Over the years, Hong Kong has accumulated considerable experience in asset management. In particular, our expertise in managing investments in Asia is widely recognised. In 2004, 73% of the assets managed in Hong Kong or about US$140 billion were invested in Asia. More importantly, our close ties with Mainland China are particularly appealing to international investors seeking to tap into the rapidly growing Mainland market. These all add up to further enhance Hong Kong's attractiveness as a world-class asset management centre in Asia.

     Thanks to the rise in personal wealth and greater awareness of early retirement planning, Hong Kong has witnessed increasing demand from people from all walks of life for a greater variety of investment tools to fulfil different investment objectives. Another factor that boosts Hong Kong's asset management business is the gradual relaxation of capital control policies of the Mainland China and our neighbouring countries. For instance, the Mainland authorities are progressively allowing funds and institutions, such as insurance companies and the National Social Security Fund, to invest overseas including Hong Kong. Likewise, with Bank Negara's relaxation of controls on overseas investment, given Hong Kong's proximity to Malaysia and our close economic relationship, coupled with Hong Kong's fundamental strengths, we are in a good position to serve as the preferred asset management centre for Malaysian investment funds.

Abolition of estate duty

     The global asset management industry has tremendous prospect for further growth. And Hong Kong certainly has the potential to take a larger share of this market. The Hong Kong Government is committed to providing a conducive environment for the further development of our asset management industry. In November 2005, a Bill to abolish estate duty in Hong Kong was passed, with retrospective effect from July 15, 2005. The key objective of the abolition was to facilitate Hong Kong's further development as a leading asset management centre in Asia to capture the increasing business opportunities. We believe that with the abolition of estate duty, more local and overseas investors will be attracted to hold assets in Hong Kong and to use our asset management services. Investors and small and medium enterprises will be spared the potential costs and inconvenience associated with the inheritance tax. In other words, the abolition of estate duty helps to create a win-win situation for Hong Kong's asset management business and foreign investors, including Malaysian investors, who are looking for effective investment means and professional asset management services.

Exemption of offshore funds from profits tax

     Another initiative taken by the Hong Kong Government to enhance our attraction as an international financial centre is the introduction of a legislative proposal to exempt offshore funds from profits tax. We propose to exempt offshore funds from tax for profits derived from "specified transactions" in Hong Kong. "Offshore funds" refer to non-resident entities including individuals, partnerships, trustees of trust estates or corporations administering a fund. Under the proposal, "specified transactions" will cover those transactions an offshore fund would typically carry out in Hong Kong, including dealings in securities, futures contracts, foreign-exchange trading, exchange-traded commodities and placing of deposits. The requirement is that these "specified transactions" must be carried out by corporations licensed with our Securities and Futures Commission (SFC) or authorised financial institutions registered with the SFC. If the proposal to exempt offshore funds from profits tax is implemented, Hong Kong's tax treatment of offshore funds will be on a par with other international financial centres such as the US and the UK and even more favourable than some other places. For example, an offshore fund would enjoy profits tax exemption in Hong Kong solely by virtue of its non-resident status irrespective of the resident status of its owners, whereas elsewhere, whether an offshore fund could enjoy the profits tax exemption will depend on the level of its interest held by the residents. Our Legislative Council is currently scrutinising the Bill and we hope to have it passed as soon as possible. I am sure Malaysian funds would find it even more attractive to invest in Hong Kong when this tax concession measure is in place.

Capital Investment Entrant Scheme

     Hong Kong is a world-class city in many aspects. It is not only an excellent place for doing business, but also an ideal habitat for overseas investors.

     The Hong Kong Government launched the Capital Investment Entrant Scheme in October 2003 to admit investors who wish to make substantial investment in Hong Kong other than setting up a business in Hong Kong themselves. Individuals with net assets under their control and disposal for investment of no less than HK$6.5 million, or US$834,000, in permissible investment assets will be eligible for admission into Hong Kong as capital investment entrants. Permissible investment assets comprise real estate and specified financial assets, including equities, debt securities, certificates of deposits, subordinated debt and eligible collective investment schemes. The scheme gives investors a high degree of flexibility in choosing their investment portfolio among a wide range of permissible assets.

     With the scheme implemented for just over two years, we have already received more than 1,100 applications, with over 600 approved capital investment entrants bringing in more than HK$4.3 billion, or US$550 million, in permissible investment assets. This clearly is a vote of confidence in Hong Kong's investment and living environment.


     Ladies and gentlemen, with our unique strengths, coupled with the Government's commitment to reinforce our position as an international financial centre and world-class asset management centre, Hong Kong is definitely your preferred choice for overseas investment. I strongly encourage you to come to Hong Kong to obtain first-hand experience with Asia's world city and to understand more about the wide range of quality investment instruments and financial services offered by Hong Kong's financial markets. Thank you.

Ends/Monday, January 9, 2006
Issued at HKT 15:10


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