mentioned earlier, the greater demand for asset and wealth management services, both institutional and individual. one of the results of the positive growth story in asia, especially mainland china, is a new dynamic along the “ value - chain ” of the asset management industry globally. at the top of the value - chain are the end - investors, sometimes referred to as “ asset owners ”. they include pension and endowment funds, sovereign wealth funds and private wealth of individuals. this group of investors is primarily responsible for asset allocation. the asset owners would normally invest via asset managers – such as mutual funds, hedge funds and private equity funds – whom i refer to the middle part of the value - chain. at the bottom of the chain are service providers such as fund administrators, custodian banks and dealer brokers. they provide services to the asset managers. therefore, asset allocation decisions by end - investors, either institutional or private wealth owners, have a knock - on impact throughout the rest of the asset management value - chain. currently, the portfolios of asset owners in the advanced economies are still significantly underexposed to emerging markets. for example, at present, a typical us pension fund has just 6 % of their investment exposure in emerging markets. not surprisingly, given the economic challenges facing the advanced economies outlined earlier and the growth opportunities in asia, there is growing interest from these end - investors in increasing their investment exposure to asia, rather than relying on investing in fixed income products of the developed economies as they have in the past. this change in allocation preference towards asia will generate significant demand for asset and wealth management services that hong kong ’ s financial institutions are well placed to provide. but the immediate question is : are we in hong kong ready to meet this growing demand? well, we do start with a number of strengths and advantages. as asia ’ s premier asset management centre, hong kong is the largest hub for asian hedge funds and the second largest hub for private equity in asia, only slightly trailing mainland china. hong kong ’ s private banking platform offers unparalleled access to the growing wealth pool in mainland china and across asia. we already have the largest number of overseas asset managers seeking to invest in the financial market in mainland china through the qualified foreign institutional investors ( qfii ) framework. we are also the first springboard for asset managers from the mainland seeking to grow their overseas footprint. in order to attract business from asset owners, asset managers are increasingly realising they need to demonstrate their commitment to

lending for infrastructure projects in asia as european banks deleverage and retrench. for policymakers, this is a triple - whammy : subdued growth, asset inflation and capital retrenchment. and compounding this are very high levels of uncertainty and volatility, as markets alternate between risk - on and risk - off. all of which makes policy calibration highly challenging and economic forecasting somewhere between extremely difficult and impossible. position of hong kong ’ s banking system given this backdrop, it is very important that we understand and monitor the developments in the us and europe as closely as possible. that way we will be able to calibrate our policy response and take swift appropriate action. this is especially important in view of the bis central bankers ’ speeches potential for a further deterioration in the european situation and how it might impact hong kong ’ s banking system. so please allow me to make a few brief points to address this : • first, i would make clear that the hong kong banking sector ’ s exposure to the eurozone ’ s peripheral countries is essentially immaterial. we do not expect to have any significant direct impact should there be an escalation of the crisis in those countries. • second, while there have been signs of european banks reducing their lending to asia, so far the scale has been manageable, and this has not caused significant credit tightening in asia. in hong kong, any slack left behind by european banks has been effectively picked up by japanese, australian and other asia banks keen to expand in the region. • third, if we cannot predict the future, we can anticipate a range of possible futures. as a result, as you would expect, the hkma has been diligent in developing proper contingency plans for a wide range of possible scenarios. this of course includes working with the banking sector in hong kong to ensure our banks are fully prepared for potential shocks. we have, for example, asked our banks to step up their contingent funding plans and to maintain sufficient high - quality, liqueﬁable assets to meet any unexpected developments. in addition, we have been active internationally – both bilaterally and multilaterally to ensure we have a coordinated, well - informed and mutually supportive approach. this includes our work as a member of the financial stability board. so, while there are challenges, we are very much alive to them. we monitor the risks closely and work continuously with our partners to prepare, and stand ready to