Notes are shunned by retail investors
Government efforts to develop the bond market in Hong Kong have received a blow, with retail investors appearing to show little interest in the first public tender open to them.
Stockbrokers said a weak retail response yesterday to the $600 million two-year Exchange Fund note tender was not a good sign ahead of Monday's $34 billion stock exchange listing of the notes.
The tender was the first opportunity for retail investors to apply for notes, via their stockbrokers. In the past, only banks and institutional investors could join such tenders.
The Hong Kong Monetary Authority (HKMA) said the tender was 1.87 times over-subscribed. It did not disclose the retail participation.
Stockbrokers said the subscription came mainly from banks, with only a few applications from stockbrokers and retail investors.
Stockbrokers Association chairman Dannis Lee Jor-hung said: 'We saw an extremely poor reaction from brokers and investors to the tender of the Exchange Fund notes yesterday.
'Exchange Fund notes are a new investment product for retail investors. It will take some time for them to learn how to invest in it.' He said expectations of a US interest rate rise may also have discouraged small investors.
'The purchase of debt securities is similar to putting your money into a time deposit,' Mr Lee said.
'Why lock up your money now when you expect you could get a higher interest rate later on.' The $600 million issue forms part of Monday's listing.
Stock exchange director Henry Law Man-wai said the exchange did not expect to see heavy trading on Monday.
'When interest rates go down in future, we can expect more retail interest,' he said.
The average price accepted for yesterday's tender was 99.86 and the yield was 6.38 per cent. The two-year notes will mature on August 13, 2001.