A BRIEF REPORT ON THE STUDY OF

EMERGING ASIANSTOCK

MARKETS

UNDER GUIDANCE: SUBMITTED BY: PROF. TAPADIA SHAILESH

KR BANSAL PGDBA-II, FINANCE

INTRODUCTION

Wall Street is not the only home of stock and securities trading that have a

history dating back more than 100 years. In Asia, stock and securities

trading dates back to 1866 and a stock exchange have existed in Hong Kong

since 1891. In fact, Hong Kong boasted two stock exchanges until the end

of World War II and in 1947 they merged to form the Hong Kong Stock

Exchange, which dominated the Asian market until 1969. The tremendous

growth of Far East economies in the early 1970s saw the creation of three

other Asian stock exchanges, including the Far East Exchange founded in

late 1969. The four stock markets merged to become the current Stock

Exchange of Hong Kong in 1986.

The rise of stock and securities trading in Asia over the past 20 years is due

in part to what was known as the "Asian Miracle," which saw nearly one-

half of financial capital being invested in developing nations flowing into

the Pacific Rim, as the region also is known. Aside from Hong Kong, the

jewel of capitalism in Asia, the economies of countries such as Thailand,

South Korea, Singapore, and Indonesia also saw an infusion of foreign

money.

During the 10-year period from 1985 to 1995, the Thai economy grew at a

rate of 9 percent a year and South Korea ranks as the world's 11th largest

economy. The booming economic climate and optimistic financial

projections resulted in a big rise in stock prices and overly aggressive

speculation.

Asia = Opportunity

Overall market growth in Asia is stronger than in North America and

Europe, but demand varies country by country, reflecting the prevailing

economic conditions locally and also reflecting the cultural and social

differences among countries in the region. Highest growth rates currently are

seen in China (18%-20% per annum) and in Southeast Asia, most notably

Thailand (12%-15%), and in India (20%). The 3% annual growth rate in

Australia and New Zealand is in line with European norms. Lowest regional

growth is in Japan at 0%-1%.

Taken as a whole, the Asian market represents a significant 23% of the total

worldwide demand for labels of all types. Of that total, self-adhesive labels

take the major share — 46.5%. The average annual growth rate, forecast at

8%-10%, conceals wide country-by-country variations.

Glue-applied labels are the second most used labeling technology in Asia

with 36.4% of the market and an estimated 4%-4.5% annual growth.

Sleeving technologies represent 15.5% of the market today and continue to

grow at 5% per annum. Certainly this is affected positively by the growth in

PET bottles for beers and mineral waters in the region, especially in China.

In-mold labeling is interesting: With less than 1% of the market currently, it

is nonetheless growing at an estimated 15% year over year.

Material Choice

Paper is the label substrate of choice in Asia, with 90% of the market. Film

stocks account for just 10% of all label face materials in Asia but are

exhibiting a greater growth rate because of their higher overall performance,

their predominant use in sleeving and in-mold technologies, and their above-

market growth in the leading self-adhesive technology.

In both papers and films, there is a drive toward lower weights and thinner

face stocks.

Paper sources in Asia are a mix of “local” production with more than 100

mills supplying a wide range of coated and uncoated papers — primarily for

self-adhesive labels — and “imports” of medium to high wet-strength coated

papers for glue-applied labels for beverages. However, we expect to see

further development of locally produced non-wet-strength paper grades,

followed by wet-strength qualities for wet glue labeling. Asia is self-

sufficient in sources of high quality films for all label applications.

The Converter Base

The position of label printers in the value chain is becoming increasingly

vulnerable due to the high number of companies involved and the lack of

consolidation — a reflection of the position in both North America and

Europe.

While there is clear movement toward narrow web print and flexography in

particular in the key Chinese market, the main installed base of presses in

Asia remains in sheet-fed lithography and letterpress. This is a direct

expression of the relative lack of technical education and support available

in many parts of the region. Press manufacturers, self-adhesive laminators,

and ink manufacturers are addressing this issue, so we can expect to see

accelerating change in the choice of label production technologies.

Market Trends

While Asia is at a much earlier stage in its development than many of the

world's major label markets, it nevertheless represents relatively developed

consumer economies, and its product manufacturers and retailers are focused

on brand differentiation, particularly through packaging and, of course,

labels. As elsewhere, this is encouraging brand owners to use a broad palette

of decorating technologies, rather than declaring allegiance to just one.

While the so-called “labeling” technologies continue to dominate, there is

increasing competition from direct-printed packaging such as cans and

flexible pouches in the beverage sector.

Asia is as focused on innovation as the rest of the world, and functional

labeling is attracting considerable interest — particularly “intelligent”

labeling features — as demography and lifestyles change in the region.

Increasingly, the influence of major global brand owners and retailers is

being felt in the region, with the label industry's value chain supporting their

efforts with improved material availability, technical support, and

infrastructure investments.

The opportunities for American and European label industry players to

develop strategic new business in this dynamic market area certainly are not

to be ignored; and as growth slows in the developed world economies, Asia

has to be the next real business development opportunity.

ARTICLES IN SUPPORT

Asian stock markets thrive as investors pour in

By Florian Gimbel

Published: April 8 2006 03:00 | Last updated: April 8 2006 03:00

Stock exchanges in Japan and Hong Kong hit record highs in recent days,

reflecting huge investments by big overseas pension funds that have been

trying to jump on the global emerging markets bandwagon.

Since the beginning of this year emerging market equity funds have seen

$23bn (€19bn, £13bn) of net new inflows, surpassing the record total for the

whole of last year in just 13 weeks, according to Emerging Portfolio Fund

Research (EPFR).

Russia to Meet 9% Inflation Goal, Central Bank Says

(Update3)

By Todd Prince

Sept. 13 (Bloomberg) -- Russia, the world's largest energy supplier, will

meet the government's 9 percent inflation target for the year, said Alexei

Ulyukayev, deputy chairman of the central bank.

Ulyukayev's comments come a day after the country's biggest oil companies

agreed to cap domestic prices for gasoline and other oil products until the

end of the year to help the government meet its inflation goal for the first

time in at least three years. He was speaking at a conference in Moscow

organized by UBS AG, Europe's largest bank by assets.

Russia, the world's second-biggest oil producer, is trying to slow inflation

and prevent a stronger ruble from hurting exporters. The government has

failed to keep inflation under 10 percent the past two years and consumer

prices have risen 7.1 percent so far this year. Gasoline prices have surged 9.3

percent since January, including a 5.4 percent surge in August.

Ulyukayev said the central bank's 8.5 percent inflation goal for 2006 may be

raised in October, though ``not significantly.'' He also said the so-called real

effective ruble rate will rise ``no more'' than 9 percent this year against a

basket of currencies, mainly dollars and euros.

The rate of core inflation, which excludes energy and fresh food prices,

slowed to 5.1 percent in the first eight months of the year, from 5.5 percent

in the same period last year, Finance Minister Alexei Kudrin told the upper

house of parliament today. The full-year figure will probably be 7.7 percent,

Kudrin said.

Consumer prices have risen less than 10 percent annually in every month

since April, Kudrin said.

``And we expect to finish the year with such a figure,'' Kudrin said. The

inflation rate will continue to slow -- to between 6.5 percent and 8 percent

next year, 4.5 percent and 6 percent in 2008, and 4 percent and 5.5 percent in

2009, he said.

Australian Stocks Advance, Led by Rinker, as

Homebuilders Rise

By Yuko Narushima

Sept. 13 (Bloomberg) -- Australian stocks rose, snapping a five-day losing

streak. Rinker Group Ltd. gained after a drop in oil prices triggered a surge

in construction shares in New York.

BHP Billiton and Rio Tinto Group rebounded as some investors said a

slump in their shares was overdone.

``The market is looking beyond the recent sell-off in oil and other

commodities,'' said Thomas Murphy, who manages $1 billion of private-

banking assets at Deutsche Bank AG in Sydney. ``The outlook is still very

solid. BHP and Rio are good value.''

The S&P/ASX 200 Index rose 42.80, or 0.9 percent, to 5017.20 at the 4:10

p.m. close in Sydney. The measure dropped 3.4 percent in the previous five

days.

New Zealand's NZX 50 Index gained 0.1 percent to 3525.30 as of the 5 p.m.

close in Wellington.

Rinker, the biggest supplier of cement blocks in the U.S., added 40 cents, or

3.3 percent, to A$12.71. James Hardie Industries NV, the biggest supplier of

home siding in the U.S., climbed 18 cents, or 2.8 percent, to A$6.69. Both

companies get about 80 percent of their earnings in the U.S.

A measure of U.S. homebuilders surged 6.1 percent in New York, the largest

advance since October 2003, after oil prices dropped to a five-month low.

BHP, the world's biggest mining company, added 40 cents, or 1.6 percent, to

A$25.05. BHP's 14-day relative strength index, a ratio of the changes in the

share price in the past two weeks, reached 26 yesterday. A score under 30

suggests the stock is poised for a rebound. The company has lost a tenth of

its value since Sept. 5.

Rio, the world's third-largest mining company, rose 97 cents, or 1.4 percent,

to A$68.36. Its relative strength index fell to 28 yesterday. Rio slumped 9.9

percent in the past four sessions.

The S&P/ASX 200 Index's futures contract for September advanced 1

percent to 5017. The broader All Ordinaries Index rose 0.8 percent to

4978.60.

The following shares also rose or fell. The stock symbols are in brackets

after the company names.

Australian Stocks:

Gold shares: Gold dropped 0.5 percent to $594.30 an ounce in New York.

Newcrest Mining Ltd. (NCM AU), Australia's biggest gold miner, slipped

11 cents, or 0.5 percent, to A$20.71. Oxiana Ltd. (OXR AU), Australia's

second largest, lost 8 cents, or 2.9 percent, to A2.69. Lihir Gold Ltd. (LHG

AU), a Papua New Guinea gold mining company, dropped 8 cents, or 2.9

percent, to A$2.69.

Aircruising Australia Ltd. (AIG AU), which organizes tours and air travel,

more than tripled, surging 23 cents, or 329 percent, to 30 cents, a price last

reached in 1997. The company said fiscal 2006 profit was 9 percent higher

than a year earlier.

Coles Myer Ltd. (CML AU), Australia's second-largest retailer, added 40

cents, or 2.9 percent, to A$14.40. Catalyst Investment Managers Pty may

lead a bid for Coles Myer, rivaling an offer from Kohlberg Kravis Roberts &

Co., the Sydney Morning Herald reported, without saying where it got the

information. Last week, Coles rejected a A$17 billion ($13 billion) offer at

A$14.50 a share by a group including KKR, Bain Capital LLC and Carlyle

Group, saying it ``substantially undervalued'' the company.

Harvey Norman Holdings Ltd. (HVN AU), Australia's biggest furniture and

electronics retailer, jumped 4 cents, or 1.1 percent, to A$3.43. The company

increased second-half earnings 23 percent on sales of flat-panel televisions

and property revaluations. Net income rose to A$97.7 million ($73 million)

in the six months ended June 30 from a year earlier. Second-half profit was

calculated by subtracting first-half earnings from Sydney-based Harvey

Norman's annual result of A$229.6 million, released in a statement today.

Just Group Ltd. (JST AU), Australia's largest specialty clothing retailer,

declined 9 cents, or 2.6 percent, to A$3.40. The company said profit for the

year ended July 29 was A$57.2 million, short of the A$58.2 million average

estimate of six analysts surveyed by Bloomberg News.

Macarthur Coal Ltd. (MCC AU), which meets one-fifth of world export

demand for pulverized coal, lost 10 cents, or 2.1 percent, to A$4.60. The

company said profit will drop this year because of higher costs and reduced

sales prices.

Senetas Corp. (SEN AU), which develops fingerprint technology, slumped 9

cents, or 20 percent, to 35 cents, the biggest drop in over six years. The

company said fiscal 2006 profit of A$23.6 million was A$11 million lower

than expected because of decreased revenue from overseas distributors.

Toll Holdings Ltd. (TOL AU), Australia's biggest freight company, added

40 cents, or 2.9 percent, to A$14.20. Craig Webb, an analyst for Citigroup

Inc. in Sydney, rated the stock ``buy'' in new coverage, citing earnings and

revenue growth.

Vision Systems Ltd. (VSL AU), a medical company, climbed 11 cents, or

5.1 percent, to A$2.26. Cytyc Corp., which makes products to screen for

cervical cancer, is in takeover talks with Vision Systems, which received a

$346 million agreed offer from Ventana Medical Systems Inc.

New Zealand Stocks:

Feltex Carpets Ltd. (FTX NZ), a New Zealand manufacturer which owes

eight times its market value in bank loans, added 0.3 cents, or 2.9 percent, to

10.8 cents. Feltex said the outcome of a refinancing bid may be known today

or tomorrow morning.

Asian Stocks Gain on Oil; Toyota Motor and Samsung

Lead Advance

By Kevin Cho

Sept. 13 (Bloomberg) -- Asian stocks rose after crude oil dropped to the

lowest in more than five months. Toyota Motor Corp. and Samsung

Electronics Co. climbed on speculation cheaper fuel will bolster spending on

cars and consumer goods.

``The decline in oil is boosting investor sentiment on exporters because it

eases concern about their earnings outlook,'' said Park Hyung Ryul, who

helps manage $1.3 billion at KTB Asset Management Co. in Seoul.

``Stabilizing oil prices will be a positive for these stocks.''

Elpida Memory Inc. and Chartered Semiconductor Manufacturing Ltd. led

gains by technology stocks after Credit Suisse Group raised its

recommendation for companies that make chip equipment.

The Morgan Stanley Capital International Asia-Pacific Index rose 0.4

percent to 126.17 at 6:35 p.m. in Tokyo, halting a two- day, 2.4 percent

drop. Crude oil for October delivery fell 2.8 percent to $63.76 a barrel

yesterday in New York, the lowest close since March 22.

Japan's Nikkei 225 Stock Average added 0.2 percent to 15,750.05, while the

broader Topix index lost 0.2 percent. South Korea's Kospi index gained 0.4

percent. Markets rose around the region, except in China and Pakistan.

U.S. stocks had their biggest advance in a month yesterday on better-than-

expected profit from companies including Goldman Sachs Group Inc. The

Standard & Poor's 500 Index rose 1 percent and the Nasdaq Composite

Index jumped 2 percent.

Oil Prices

Toyota, the world's second-largest automaker, rose 1 percent to 6,200 yen.

Samsung Electronics, which accounts for more than 10 percent of South

Korea's exports, gained 1.6 percent to 642,000 won.

Crude oil dropped yesterday after the International Energy Agency cut its

global consumption estimates by 100,000 barrels per day. The contract

recently traded at $63.63. Oil reached a record $78.40 a barrel on July 14.

``I'm expecting crude prices to fall a bit more,'' said Koichiro Suzuki, who

helps oversee $1.3 billion in assets at Sompo Japan Insurance Inc. in Tokyo.

``Asian exporters will benefit from this trend for the time being.''

Canon Inc., which generated almost 75 percent of its sales from overseas last

year, jumped 2.1 percent to 5,840 yen. Hyundai Motor Co., which got 29

percent of its overseas sales from the U.S. last year, added 0.7 percent to

81,200 won.

Hynix Jumps

Technology companies as a group climbed 1.5 percent, the biggest gain on

the MSCI Asia-Pacific Index.

Elpida Memory, Japan's largest memory chipmaker, jumped 6.6 percent to

5,660 yen. Chartered, the world's third-biggest maker of customized chips,

added 3.3 percent to S$1.26 in Singapore.

Credit Suisse yesterday raised its recommendation for companies that make

semiconductor equipment to ``overweight'' from ``market weight.'' The

brokerage also lifted its rating on Applied Materials Inc., the world's biggest

maker of semiconductor production equipment, on the view that spending by

computer-chip makers will rise.

Separately, Advanced Micro Devices Inc. had its rating increased by

Lehman Brothers, which said the No. 2 maker of personal-computer

processors will benefit from rising orders by computer makers and

improving market conditions.

Hynix Semiconductor Inc., Asia's second-largest memory chipmaker, gained

3.1 percent to 38,350 won. Taiwan Semiconductor Manufacturing Co., the

world's biggest supplier of custom-made chips, rose 3 percent to NT$58.40.

``The profit outlook for technology companies, especially memory

chipmakers, is improving on higher prices and strong demand,'' KTB Asset's

Park said.

Sumco Corp., the world's second-largest maker of silicon wafers for the

semiconductor industry, climbed 5.2 percent to a record 8,360 yen. First-half

profit surged more than fivefold from a year earlier to 48 billion yen ($408

million), the company said yesterday after the market closed. It raised its

full-year net income forecast 82 percent.

Canon Inc. (7751 JT)

Chartered Semiconductor Manufacturing Ltd. (CSM SP)

Elpida Memory Inc. (6665 JT)

Hynix Semiconductor Inc. (000660 KS)

Hyundai Motor Co. (005380 KS)

Samsung Electronics Co. (005930 KS)

Sumco Corp. (3436 JT)

Taiwan Semiconductor Manufacturing Co. (2330 TT)

Toyota Motor Corp. (7203 JT)

MARKETS HOW THEY PERFORMED

FROM 22-29 AUGUST

COUNTRY BENCHMARK AUG-29 1 WEEK 1 YEAR

CHINA SHANGHAI 1651.02 2.33 39.33HONGKONG HANGSENG 17083.28 7.73 12.81INDIA SENSEX 11706.85 1.78 48.64INDONESIA JAKARTA

COMP1432.93 -0.15 8.31

MALAYSIA KLSE COMP 137.30 0.57 5.70PAKISTAN KARACHI 100 9943.27 -2.72 27.98RUSSIA RTS 1667.86 1.63 86.44SINGAPORE STRAITS TIMES 2455.33 -1.03 6.96SOUTH KOREA

KOSPI 1344.61 2.04 21.53

SRILANKA ALL SHARE 2151.98 1.46 1.21

EXTRACTS & MARKET SUMMARY OF DIFFERENT MARKETS

CHINA:

Brief Introduction to SSE

The Shanghai Stock Exchange (SSE) was founded on Nov. 26th,1990 and in operation on

Dec.19th the same year. It is a non-profit-making membership institution directly

governed by the China Securities Regulatory Commission(CSRC). The SSE bases its

development on the principle of "legislation, supervision, self-regulation and

standardization" to create a transparent, open, safe and efficient marketplace. The SSE

endeavors to realize a variety of functions: providing marketplace and facilities for the

securities trading; formulating business rules; accepting and arranging listings;

organizing and monitoring securities trading; regulating members and listed companies;

managing and disseminating market information.

After several years' operation, the SSE has become the most preeminent stock market in

Mainland China in terms of number of listed companies, number of shares listed, total

market value, tradable market value, securities turnover in value, stock turnover in value

and the T-bond turnover in value. December 2004 ended with over 37.87 million

investors and 837 listed companies. The total market capitalization of SSE hit RMB 2.6

trillion. In 2004, Capital raised from SSE market surpassed RMB 45.7 billion. A large

number of companies from key industries, infrastructure and high-tech sectors have not

only raised capital, but also improved their operation mechanism through listing on

Shanghai stock market.

Entering the new century£¬SSE is faced with great opportunities as well as challenges to

further boost the market construction and regulation. Combining the cutting-edge

hardware facilities£¬favorable policy conditions in Pudong, exemplary role of Shanghai

economy, SSE is fully committed to the goal of State-owned industrial enterprises reform

and developing Shanghai into an international financial center with great confidence.

Market Summary

In 2004, the total turnover on the SSE was RMB 7,692.732 billion, 7.22% lower than the

previous year, of which tradings of stocks accounted for RMB 2,647.060 billion, or

34.41% of the total turnover. Of the stock trading tourover, A shares trading was RMB

2,622.930 billion, which accounts for 99.09% of the total, B shares trading amounted to

RMB 24.13 billion, or 0.91% of the total. Tradings on T-bonds reached RMB 4,704.772

billion, which accounts for 61.16% of the total securities trading, of which RMB 296.149

billion was spot trading and RMB 4,408.623 billion was bonds repo. Total funds trading

was RMB 24.91 billion. Daily average trading of stocks was RMB 10.893 billion,

26.06% higher than the previous year; daily bonds trading was RMB 19.540 billion,

down 23.54% from the previous year; daily fund trading was 103 million RMB, 31.33%

lower than the previous year. Calculated on the tradable share market capitalization, the

turnover ratio of A Shares and B Shares were 308.31% and 58.29% respectively.

The SSE 50 Index opened at 997 and closed at 842.73, shedding 15.47% at the end of the

year, with peak at 1141.99 and lowest at 833.09. Throughout the year, the SSE 50 index

had a fluctuation of 37.08%. The SSE180 index opened at 2820.24 at the beginning of the

year and closed at 2362.07, down 16.25%, with its peak at 3278.82 and lowest at

2321.86, fluctuating within a band of 41.22%. The SSE composite index opened at

1492.72 and closed at 1266.50 with the peak at 1783.01 and lowest at 1259.43,

fluctuating within a band of 41.57%. The B Share index opened at 104.87 and closed at

75.65, with the peak at 122.94 and lowest at 75.46. The B share index shed 27.86% from

the previous year level with a volatility of 62.92%.

In 2004, the Exchange had a total of 37.87 million investor accounts, of which 36.7567

million are retail accounts investing in A shares, up 4.23%% from one year ago, 993,600

are B share accounts, which increased by 1.33% from the previous year; 119,700 are

institutional investors, down 36.80% from the previous year figure

In July 2006, the SSE Composite Index opened at 1677.31 and closed at 1612.73, down

64.58 points or 3.85%. The total turnover value for the month stood at RMB 834.6

billion, with stocks turnover at RMB 501.9 billion and T-bonds turnover at RMB 85.8

billion. The total turnover value for the first seven months of this year amounted to RMB

4683.7 billion, with stocks turnover at RMB 2866.6 billion and T-bonds turnover at RMB

880.1 billion.

Major market indicators of the Shanghai securities market as of July 31, 2006:

HONG KONG

Hong Kong Exchanges and Clearing Limited (HKEx)

In his 1999 Budget Speech, Hong Kong's Financial Secretary announced comprehensive

market reform of the stock and futures markets. The reforms were designed to increase

competitiveness and meet the challenges of an increasingly globalised market.

Under the reform, The Stock Exchange of Hong Kong Limited, Hong Kong Futures

Exchange Limited demutualised and together with Hong Kong Securities Clearing

Company Limited, merged under a single holding company, HKEx.

The merger was completed on 6 March 2000 and HKEx listed its shares by introduction

on the stock exchange on 27 June 2000.

Securities market

Reports of securities trading in Hong Kong date back to the mid-19th century. However,

the first formal market, the Association of Stockbrokers in Hong Kong, was not

established until 1891. The Association was re-named the Hong Kong Stock Exchange in

1914.

A second exchange, the Hong Kong Stockbrokers' Association was incorporated in 1921.

The two exchanges merged to form the Hong Kong Stock Exchange in 1947 and re-

establish the stock market after the Second World War.

Rapid growth of the Hong Kong economy led to the establishment of three other

exchanges - the Far East Exchange in 1969; the Kam Ngan Stock Exchange in 1971; and

the Kowloon Stock Exchange in 1972.

Pressure to strengthen market regulation and to unify the four exchanges led to the

incorporation of the Stock Exchange of Hong Kong Limited in 1980. The four exchanges

ceased business on 27 March 1986 and the new exchange commenced trading through a

computer-assisted system on 2 April 1986. Prior to the completion of the exchange

merger in March 2000, the unified stock exchange had 570 participant organizations.

Derivatives market

Established in 1976, Hong Kong Futures Exchange Limited is a derivatives leader in the

Asia-Pacific region. It provides efficient and diversified markets for trading futures and

options contracts by its more than 130 participant organizations, including many that are

affiliated to international financial institutions.

Derivatives market under HKEx operates futures and options markets on a broad range of

products, including equity index, stock and interest rate. HKEx and its subsidiaries,

HKFE Clearing Corporation Limited and SEHK Options Clearing House Limited,

operate rigorous risk management system which enables participants and their clients to

meet their investment and hedging needs in a liquid and well-regulated market place.

Stock settlement

Hong Kong Securities Clearing Company Limited was incorporated in 1989. It created

CCASS, the central clearing and settlement system, which started operating in 1992 and

became the central counterparty for all CCASS participants.

The clearing operation is based on the immobilization of share certificates in a central

depository. Share settlement is on a continuous net settlement basis by electronic book

entry to participants' stock accounts in CCASS. Transactions between CCASS

participants are settled on T+2, the second trading day following the transaction.

Hang Seng Index(06/09/2006)

HSI is compiled and maintained by HSI Services Ltd.

HSI 17258.51 -180.29 -1.03%

Market Summary

The Year 2005 in Review

Against the background of a buoyant economy, the HKEx securities and derivatives

markets set new records in 2005. The total market capitalization of the securities market

(including the Main Board and the Growth Enterprise Market (GEM)) set a record

ofHK$8,260.3 billion on 21 December 2005, surpassing the 2004 record of HK$6,695.9

billion.

As at the end of 2005, Hong Kong

ranked the 8th by market capitalization among members of the World Federation of

Exchanges. The annual market turnover also reached a new high of HK$4,520.4 billion

in 2005, a 14% increase from 2004. A total of 67 companies newly listed on the Main

Board and GEM in 2005, raising a total of HK$165.7 billion.

At the end of 2005, the Hang Seng Index (HSI) closed at 14,876 points, representing a

yearly increase of 5%. The Hang Seng

China Enterprises Index (H-shares index) rose by 12% to 5,330 points in the year, while

the Hang Seng China-Affiliated

Corporations Index (the red-chip index) surged by 24% to 1,935 points. The average

daily turnover of the Main Board in 2005 was

HK$18.2 billion, up 15% from that in 2004. The S&P/HKEx GEM Index closed at 1,007

points at the end of year, representing a year-on-year increase of 2%. The GEM average

daily turnover in 2005 was HK$90.43 million, a 13% decrease from the pervious year.

The derivatives market also recorded its most active year with an annual volume of

25,523,007 contracts in 2005, a 30% increasefrom 2004. The average daily derivatives

turnover was 103,332 contracts (54,386 contracts in futures and 48,946 contracts in

options), representing a year-on-year increase of 31%.

STOCK MARKET

Market development

Listing

The year saw continued progress in listing-related reform initiatives. In January, the

Financial Services and Treasury Bureau (FSTB) and the Securities and Futures

Commission (SFC) each published a consultation paper on certain legislative proposals to

enhance the regulation of listed companies, in particular to introduce statutory backing

for major listing requirements. In February, HKEx published a consultation paper on

establishing a new listing decision-making structure. The proposed new structure

comprises a Listing Policy Committee, a Listing Decisions Panel, a Listing Review

Panel, an Adjudicator and a Disciplinary Review Penal. Publicconsultation revealed

support for the direction of the reform.

Initiatives were also undertaken by the SFC to facilitate the listing process. It released in

August a consultation paper on possible reforms to the prospectus regime in which a

unified offering regime for all regulated investments is proposed. The paper also

proposed greater liability for sponsors and underwriters in respect of the information

disclosed in prospectuses. In June the SFC released a consultation paper proposing

specific entry criteria and ongoing compliance requirements for sponsors.