The prophets of doom who predicted that the Hong Kong government's unloading of its stock market portfolio would be a disaster have been proven wrong. Its Tracker Fund of Hong Kong was massively oversubscribed at launch. But behind the offering's success lies a tale of disputes over commissions and rebates, anxiety among some professionals that that fund would add to market volatility and concern that the government is deviating from a laissez-faire policy that has served the territory so well.
The story goes back to August 1998 when the Hong Kong government broke with tradition and spent US$15 billion (HK$117 billion) from official reserves on propping up the local share market. A year later these shares were worth $26 billion but the government faced the problem of liquidating all but 5% of this unwanted equity portfolio without creating a fresh stock market crisis. Its solution was to create a free-standing Tracker Fund of Hong Kong whose units would be sold off to investors.
At US$4.3 billion, it was Asia's biggest public offering. Retail and institutional investors applied for at least three times the initial indicative offer size. And, on its first day of trading, it racked up profits of up to 10% for thousands of investors.