The people of Hong Kong are no strangers to investing in stocks. According to a survey conducted by Hong Kong Exchanges & Clearing Ltd., there are about 1 million stock investors in Hong Kong. In contrast, when it comes to investing in bonds, the level of knowledge and public participation is rather low.

To enhance the status of Hong Kong as an international financial centre, the Government is making every effort to promote the development of the bond market. I am delighted to see that more and more people are getting to know about this investment vehicle.

Over the past year, the people of Hong Kong have clearly demonstrated a greater interest in bond investment. This is partly due to the low interest-rate environment, which has prompted some people to transfer a portion of their bank deposits to the bond market, and partly because some investors use the bond market as a means to diversify their investment risks.

Bonds provide dependable flow of interest payments

On the retail investment side, bonds provide "interest earners", such as retirees, with a long-term investment opportunity that combines a dependable flow of interest payments with capital protection. In a developed market, bonds are very liquid investments. But of course, as I often remind members of the public, when investing in bonds, attention should be paid to interest-rate risks and the credit ratings of issuers.

From the macro perspective, the development of the bond market would give public and private sectors an additional channel for long-term capital raising, distinct from bank loans and the stockmarket. It would also help attract overseas companies in need of capital financing.

In this regard, the Hong Kong dollar retail bond recently issued by a multinational company based in the US is the first of its kind. Diversification of investment products makes it easier to attract overseas capital and reinforces Hong Kong's position as an international financial centre.

In fact, among Asia's financial capitals, Hong Kong is well-positioned to become a bond centre. We already have an advanced clearing and settlement system for bonds. Moreover, our sound legal system, free flow of information, simple and low tax regime, open capital markets and first-class human resources inspire confidence in companies and investors.

HK a leading securities market

For years, Hong Kong has been one of the world's leading securities markets. Our sophisticated financial-services sector supports a workforce of 180,000. Further growth of the bond market will benefit Hong Kong's economy and improve our employment situation.

The Government has introduced a series of measures to foster the development of the bond market. These include the provision of financial infrastructure, streamlined procedures for bond issuance and the tax concessions proposed in March this year.

Since taking up office, I have been encouraging the public corporations to take the lead in launching debt-issuance programmes, including Hong Kong dollar bonds with longer maturity periods and particularly at the retail level. Last year, we saw Hong Kong dollar bonds, including retail bonds, with maturities ranging from seven to 15 years issued by the Airport Authority, the MTRC and the KCRC.

The response from investors has been good. These bonds provide benchmark yield curves for the reference of the market and represent additional investment options. As at June 2003, the outstanding amount of Hong Kong dollar bonds, including the Exchange Fund Bills issued by the Hong Kong Monetary Authority, totalled $553 billion.

Gov't will encourage public sector to issue bonds

The community is concerned about whether the Government will issue bonds. As the Financial Secretary pointed out in his address to the Legislative Council last week, the Government views positively the idea of issuing bonds to fund capital projects that will bring long-term economic benefits to Hong Kong. The Government will conduct further studies on this issue over the next few months.

The Government will continue with its multi-pronged approach to developing the bond market. We will keep up our efforts by, among other things, encouraging the public sector to issue bonds, in particular retail bonds; promoting bond investment education; and exchanging views with the financial services industry on how to stimulate the development of the market.

Apart from promotional efforts buttressed by Government policies, I hope we can count on the support and participation of both the markets and the media. Let's work together to develop Hong Kong's bond market and strengthen our status as an international financial centre.