Hong Kong as an International Financial Centre – Facts over Myths

Q1:

Is capital fleeing Hong Kong?

A1:

On the contrary, we have been recording net inflow.  Had money been flowing out, we would have seen a weakening Hong Kong Dollar (HKD) exchange rate and shrinking banking deposits.  Let’s look at these two key indicators:

Free flow of capital is a defining feature of Hong Kong as an IFC and is guaranteed under the Basic Law.  While there could be outflows occasionally for different reasons, more money has been coming in, resulting in the net inflows into HKD.  And the HKD market has been very stable and functioning orderly in accordance with the design of the Currency Board.

Q2:

Many Hong Kong people are opening offshore accounts to move money elsewhere? Private wealth is leaving Hong Kong?

A2:

In fact, Hong Kong’s private wealth management industry keeps growing. Asset under management (AUM) by Hong Kong’s private banks went up by 19% in 2019 and Hong Kong remained the number one private wealth management centre in Asia, and number two globally (second only to Switzerland). While we do not have 2020 figures yet, indicative numbers from major private banks suggest that the growth trend has continued on the back of strong 2019 performance, registering double-digit growth.

From what we have gathered from retail and private banks, there were more enquiries about offshore accounts, particularly in 2019, but these have largely subsided in 2020. For those who have opened offshore accounts, actual money movements should be insignificant, otherwise they would have offset the inflows as highlighted in A1.

Q3:

Financial institutions (e.g. hedge funds and Exchange Traded Funds) are packing and leaving Hong Kong in droves? 

A3:

Let’s not lose perspective here.  The fact is that the number of asset managers in Hong Kong increased by 3.9% from 1,808 as at end 2019 to 1,878 as at end 2020¹, against the backdrop of COVID-19. AUM in Hong Kong at end-2019 (latest available statistics), the year we were confronted by social unrest, actually went up strongly by 20% year-on-year to reach almost US$ 4 trillion and recorded a net inflow of over US$200 billion.

Hong Kong has always been the largest private equity (PE) hub in the Asia Pacific region after Mainland China.  As at end 2019, our total capital-under-management reached US$160 billion.²A total of 15 out of the world’s top 20 PE firms³ have established presence in Hong Kong, many of them being the regional headquarters.  We are also seeing increasing interest by privately offered investments to domicile in Hong Kong.  Following the enactment of the Limited Partnership Fund (LPF) regime last August, over 90 LPF have already registered in five months.

Let’s also take a look at the more mobile hedge fund industry.  As of June 2020, we are still the focal point with 445 hedge funds based in Hong Kong, the largest number in the Asia Pacific region⁴.

Hedge funds, asset managers or even banks come and go for various business reasons.  As an asset owner and a regulator, we know these institutions well.  Some of them departed for reason of shifting business focus while some were results of consolidation at group level.  New ones come in at the same time, bringing with them new strategies and expansion plans.  These are very common movements for any IFCs.

Q4:

Has Hong Kong’s capital market been receding?

A4:

Our capital markets are thriving -

You are all too familiar with the IPO story: we’re number two after NASDAQ by small margin in 2020, and number one in 7 of the last 12 years.

One other fact also stands out — the impressive growth of the Stock and Bond Connect traffic, showing Hong Kong’s unshakeable role in serving as the gateway between the Mainland and the world. Average daily turnover of Stock Connect more than doubled in 2020, with northbound traffic going up by 119% and southbound going up by an impressive 128%. Currently around 70% of all A shares held by international investors are booked/traded through Hong Kong.

Bond Connect is equally impressive. Average daily turnover tripled in 2019 and then recorded a respectable 82% increase in 2020, as international investors raise their RMB allocation with the attractive yield pick-up and diversification benefit. Although foreign investors can directly participate in the onshore bond market as early as 2010, seven years before the launch of the Bond Connect, more than half of the international investors’ turnover and around a quarter of their holdings are done through Hong Kong, riding on our efficient and internationally-aligned infrastructure.

Stay tuned for more breakthroughs: Wealth Management Connect and South-bound Bond Connect, just to mention two near-term initiatives to create more policy headroom.

Q5:

Has there been any exodus of talents occurring in Hong Kong? 

A5:

Last year, the number of jobs in Hong Kong’s finance and insurance industry actually achieved 0.7% and 1.4% increase year-on-year respectively, despite surging unemployment because of the pandemic.⁵ Financial talents, just like financial institutions, are attracted to opportunities.  Hong Kong’s unique access to Mainland opportunities and its vibrant fintech and sustainable finance scene provide an excellent launching pad for talents of all sorts.

All the intangible factors: connectivity, laissez faire environment, international flair, cosmopolitan society, cultural diversity, etc. that make Hong Kong an evolving, thriving and welcoming city for global citizens to invest, work and live in, remain intact.