A favourable geographical position, bridging the time gap between North America and Europe; strong links with the Mainland and other economies in Southeast Asia and excellent communications with the rest of the world; the rule of law; a level playing field and 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 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 regulations, which are in line with international standards. A highly educated workforce and ease of entry for professionals from outside Hong Kong also contribute to the development of its financial markets.

International financial institutions maintain a strong presence in the city. Of the world's top 100 banks, 71 have operations in Hong Kong. At the end of 2005, there were 175 foreign-owned authorised institutions, which included 121 licensed banks, 32 restricted licence banks and 22 deposit-taking companies. A further 86 foreign banks have established local representative offices in Hong Kong.

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 $247 billion in 2005.

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 dealing to continue 24 hours a day with the rest of the world. The last triennial survey coordinated by the Bank for International Settlements in April 2004 shows that the daily average foreign exchange turnover in Hong Kong is US$102 billion, which represents 4 per cent of the world's total transactions and makes Hong Kong the world's sixth largest foreign exchange market.

With a total market capitalisation of about $8,180 billion at year-end, the Hong Kong stock market ranked eighth in the world and second in Asia, following Japan¹. The daily turnover averaged $18.2 billion in 2005. At year-end, 1,135 public companies were listed on the Stock Exchange of Hong Kong (SEHK). The 64 newly listed companies raised a total of $165.7 billion from initial public offerings (IPOs). Besides new share issues, a total $135.4 billion was raised on the secondary market. The Real Estate Investment Trust (REIT), which was first listed on the SEHK in November, was one of three REITs listed during 2005. They raised $25.5 billion in total.

The Hong Kong stock market is an important fund-raising platform for Mainland enterprises. Of the 122 Mainland-incorporated enterprises listed outside the Mainland, 120 were listed on the SEHK. At year-end, there were 335 Mainland enterprises listed on the SEHK. In 2005, equity funds raised by Mainland enterprises² amounted to $198 billion, which was 66 per cent of the total equity funds raised through the SEHK during the year. About $151 billion was raised in new listings of Mainland enterprises in Hong Kong, accounting for 91 per cent of the total equity funds raised in IPOs on the SEHK. The market capitalisation of Mainland enterprises accounted for 39 per cent of the SEHK's total market capitalisation. In 2005, the total annual trading turnover of Mainland enterprises accounted for 46 per cent of the total annual turnover of the Hong Kong stock market. It is expected that Mainland issuers will continue to be major growth drivers of the stock market in the future.

The Hong Kong asset management industry is characterised by its strong international flavour, in terms of the presence of both global fund managers and authorised funds. According to the Fund Management Activities Survey 2004 conducted by the Securities and Futures Commission (SFC), which covered fund management activities of SFC licensed corporations that engage in asset management and fund advisory businesses and banks which engage in asset management and other private banking activities (collectively referred to as 'registered institutions'), the combined fund management business of licensed corporations and registered institutions amounted to $3,618 billion at end-2004, up 23 per cent from $2,947 billion in 2003. SFC licensed corporations accounted for 80 per cent or $2,896 billion of the combined fund management business, and the rest was reported by registered institutions.

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 bars³. Prices closely follow those in the other major gold markets in London, Zurich and New York.

Hong Kong continues to be one of the most open insurance centres in the world. Among the 175 authorised insurers at year-end, 86 were from 20 overseas countries or the Mainland. Twelve of the world's top 20 insurers are authorised to carry on insurance business in Hong Kong either directly or through a group company. There are 20 professional reinsurers, including most of the top reinsurers in the world. Gross premium income in 2004 was $122 billion.

1	Source: World Federation of Exchanges.
2	Mainland enterprises include H share companies, red-chip companies and non-H share Mainland private enterprises.
3	Tael bars are of 99 per cent fineness and weighted in taels (one tael equals approximately 1.20337 troy ounces). Kilo bars are of 999.9 parts per thousand fineness and weighted in kilograms.