Hong Kong ranks 6th in global forex market

Hong Kong has moved up one place to rank sixth in the global foreign exchange market.

The latest Bank for International Settlements triennial survey results issued today (September 28) by the Hong Kong Monetary Authority (HKMA) also show that Hong Kong is now seventh in the global foreign exchange and over-the-counter derivatives market.

"The advance in Hong Kong's global ranking in terms of foreign exchange trading is encouraging as it reinforces our position as a competitive and active centre for foreign exchange and derivatives activities," said HKMA Deputy Chief Executive William Ryback. The Hong Kong results were broadly in line with global trends.

The survey found net daily turnover of foreign exchange transactions rose 52.9% to US$102.2 billion in 2004, compared with the previous survey in 2001.

There was marked growth in both spot and forward transactions, with the former rising 87.9% to US$35.6 billion and the latter by 39% to US$66.5 billion.

Forwards, nonetheless, comprise a majority of the foreign exchange transactions and a large proportion was of short maturity of less than seven days.

As expected, the most heavily traded currency pair on the local market remained the Hong Kong and US dollars. Trading of other currency pairs also rose, reflecting the deepening of Hong Kong's foreign exchange market.

The results indicated that increased asset management activities in Hong Kong and the increase in treasury operations of banks on the back of narrowed lending margins were probably the key factors behind the growth.

Also contributing to the growth were particular market conditions, including unprecedented near-zero interest rates, prompting investors to seek higher returns via the foreign exchange market, and the broad depreciation of the US dollar, prompting investors to purchase other foreign currencies for valuation gains.

The average daily net turnover of over-the-counter derivatives (both foreign exchange and interest rate derivatives) rose 2.6 times to US$14.9 billion.

Strong growth was seen in both foreign exchange derivatives and interest rate instruments, particularly the latter, due to growing anticipation of interest rate increases in 2004.

In contrast to the significant rise in 2001, turnover in the Hong Kong dollar against the US dollar shrank by 38.2% in 2004. Its share of the total net turnover fell from 28.2% in 2001 to 7.2%.

On single currency interest rate derivatives, US dollar denominated contracts surpassed Hong Kong dollar denominated contracts to represent the largest share of gross turnover in 2004.

Although Hong Kong dollar contracts grew 97.5%, their share reduced from 59.3% to 27.7% to rank third after the US dollar and Japanese yen as contracts denominated in yen increased strongly.

The survey was conducted as part of a global survey of 52 economies co-ordinated by the Bank for International Settlements.

Ends/Tuesday, September 28, 2004