Chart 1 Gross Domestic Product (%) 8 6 4 2 0 -2 -4  Year-on-year change  -6  Quarter-on-quarter change, seasonally adjusted  -8 Q1/ 96  Q2  Q3  Q4  Q1/ 97  Q2  Q3  Q4  Q1/ 98  Q2  Q3  Q4  Q1/ 99  Q2  1  •  GDP – a rebound in the second quarter (in excess of 3%, quarter on quarter) after six consecutive quarterly declines (Chart 1)  Chart 2 External Trade $ 20 15 10  (% yoy) 28  Overall trade balance Imports of goods Exports of goods  21 14  5  7  0  0  -5  -7  -10  -14  -15  -21  -20  -28  -25  -35 1996  1997  1998  1999 2  •  External trade – exports picked up in recent months, with the overall trade balance remaining in a healthy position (Chart 2)  BIS Review 103/1999  2  Chart 3 Retail Sales (Seasonally Adjusted)  (% qoq) 8 4 0 -4 -8 -12 Q1/ 97  Q2  Q3  Q4  Q1/ 98  Q2  Q3  Q4  Q1/ 99  Q2 3  •  Retail Sales – clear rebound in the second quarter (7% increase, quarter on quarter) (Chart 3)  Chart 4 Tourist Arrivals  (’000) 1,200  1,000  800  600 96  97  98  99 4  •  Tourism – uptrend re-established (up by 11% in the first seven months of 1999) (Chart 4)  3  BIS Review 103/1999  Chart 5 Labour Market (%, 3mma) 7 Unemployment rate (LHS) 6 Employment growth (RHS) 5  (%, yoy) 7 6 5  4  4  3  3  2  2  1  1  0  0  -1  -1 96  97  98  99 5  •  Unemployment – off the peak, now at about 6% (Chart 5)  (Index) 125  Chart 6 Composite CPI (Seasonally Adjusted, 10/94 - 9/95 = 100)  120 115 110 Overall Core Core excluding rent  105 100 96  97  98  99 6  •  Prices – downward adjustment in CPI continuing, but the fall in core prices excluding rentals has levelled off in recent months (Chart 6)  BIS Review 103/1999  4  Chart 7 Hang Seng Index  (31/7/64=100) 17,000 15,000 13,000 11,000 9,000 7,000 96  97  98  99 7  •  Stock market – recovered almost all of its lost ground (Chart 7)  (1995=100) 180  Chart 8 Residential Property Price Index  160 140 120 100 80 96  97  98  99 8  •  Property prices – off the bottom (September 1998) and stable (Chart 8)  5  BIS Review 103/1999  Chart 9 Interest Rates  (%) 50  1-month HIBOR 40 Differential between 1-month HIBOR and LIBOR  30 20 10 0 -10 97  98  99 9  •  Interest rates – stability returned, and premium over the US Dollar interest rates has fallen to pre-crisis level (Chart 9)  (Ratio) 7  Chart 10 Loans Delinquency Ratio of Local Banks  6 5 4 3 2 1 4Q97  1Q98  2Q98  3Q98  4Q98  1Q99  2Q99 10  •  Non-performing loans – low (around 6%), still increasing but signs of levelling off in the second quarter (Chart 10)  BIS Review 103/1999  6  Chart 11 Mortgage Loans Delinquency Ratio  (Ratio) 1.4 1.2 1.0 0.8 0.6 0.4 0.2 Jun-98  Aug-98  Oct-98  Dec-98  Feb-99  Apr-99  Jun-99 11  •  Overdue mortgage payments – default ratio definitely levelling off since April (Chart 11).

Therefore, in my view, trust is where the future is – the financial adviser of the future will be a trusted adviser – one that customers can depend on for reliable, thoughtful and bespoke advice without hesitation. Confidence and trust in the industry has unfortunately been bruised in recent years. Instances of mis-selling and fraudulent practices have adversely affected the industry’s reputation. The rising occurrence of illegal financial schemes in recent times has further worsened the public’s perception towards individuals who call themselves “financial experts”. Most financial advisers have done the right thing, only a small minority has not. Yet, it is this minority that has been enough to trigger a tipping point of bad publicity for the profession. Under these circumstances, trust becomes the ultimate currency of trade. Trust entails adherence to high ethical standards, putting the interests of customers first and treating them fairly. It comes down to the profession having a genuine concern for customers’ long-term financial needs. As trusted advisers, your responsibilities extend beyond just advising customers on how to invest their money. Rather, it is about helping them achieving their financial goals, building their financial standing, and securing a promising future for them and their children. Indeed, this is in line with the philosophy of the Association of Financial Advisers. It is imperative that your actions reflect these values. Indeed, as Confucius reminds us, it is the deeds that will prove critical in building the long lasting, reliable relationships that will take this profession to greater heights.