When I first started writing letters from Hong Kong some 37 years ago, soon after I arrived in Hong Kong to work, it was to family in the UK and sent by air mail, take 8 to 10 days to arrive and would reflect a Hong Kong life in the latter stages of a colonial era that existed in the 1980s. Today, such messages can be sent and received instantaneously via email, WhatsApp, or other social media, and almost all vestiges of a “colonial Hong Kong” have disappeared.
The fund and asset management industry in Hong Kong and most of Asia is alive and well, confounding some critics by continuing to grow and also attract major global players to set up within the region to participate. No longer does “loose regulation” exist, upon which many firms started their business operations, to have been replaced by very strictly enforced and in some instances, world-class regulation. Healthy competition between Hong Kong and Singapore to both attract global firms and to win private banks to set up continues apace, with both employing the attractions of their respective catchment areas to reflect the substantial opportunities available.
Wealth creation in Asia remains at the core of this growth, and that too is robust. Every week it seems, there are announcements of new Family Offices being set up in either Singapore or Hong Kong, with both locations offering very attractive packages for these. And it is not just Asian and Chinese families setting up, there are many from the US and Europe who view the attractions of low tax and relatively secure locations, as being appropriate for their family needs.
The Covid pandemic has had an inevitable impact throughout the region, with China adopting a “zero covid policy” and thus necessitating Hong Kong to have a similar approach. Japan, Singapore and Taiwan also had a similar approach but have realized that this policy is almost impossible to succeed. Japan and Singapore have thus reopened their borders to tourists and business travelers, much to the relief of local tourist dependent businesses. Hong Kong still applies quarantine requirements on returning residents, and restricts non-residents from arriving.
From a zero start around 1995, the Mainland China fund and asset management business has grown to become the second or third largest globally (depending on the basis of measurement) at around US$25 trillion approximately, exceeding the size of the UK business in 2021. However, in the retail space, more than 99% of the assets remain invested only in Chinese securities. Institutions in China have begun to realise the need to diversify beyond their own markets, but it is still less than 5% of institutional assets that have non-China securities.
To cater for the potential outflows from China, for a number of years, Hong Kong has been developing a variety of “Connect” schemes (it was even considering patenting the word “Connect” at one time), with Stock Connect – the ability to buy and sell listed securities on the Hong Kong Stock Exchange to Mainland investors, and Shanghai and Shenzhen listed securities to global investors via Hong Kong – the most successful. It has in effect removed the need for many of the other access schemes China introduced over the years, as all global investors, whether retail or institutional, can avail themselves of this access via Hong Kong based securities companies and investment banks offering such services. It has also allowed Mainland China institutions to invest in Hong Kong securities, without limit. Other access schemes like Bond Connect have also had a high degree of success also for similar reasons.
The biggest opportunity opening up in China is in the area of pensions. With around a billion people in employment, and minimal provision being made, many global firms, both fund managers and insurance companies, are seeking to win licenses and/or set up joint ventures, to participate in the planned expansion of pension provision in the next 5 years. The institutional market for China already has in excess of US$5 trillion in assets, so it can be assumed there will be plenty to go for in the future.
There have been numerous reports, especially in the UK press, about people leaving Hong Kong in droves, and how many HNWI have moved their money from Hong Kong to Singapore, following enactment of Hong Kong’s National Security Laws. On the one hand, it is true that many people have left Hong Kong, the statistics show a net outflow of more than 2% of population in 2022 already, many going to the UK to take up the UK Government offer for eligible passport holders. But in terms of financial exit, the amounts leaving Hong Kong for Singapore are minimal and don’t make or have much impact on the size and scale of the market. Many of those departing were in the “middle management” area of companies. Similarly, many expatriate families have also departed, especially those involved with the aviation and travel industries. A consequence of these departures is that there are more opportunities for promotion and increased vacancies, especially in the financial services industry, which is beginning to look very short on talent.
In November, Hong Kong is planning to host the Hong Kong Rugby Sevens for the first time in three years, and coinciding with that, the Hong Kong Government is planning to hold a large-scale financial conference. Full details of both are yet to be announced. While “3 plus 4” day hotel quarantine requirements remain in place it is difficult to see how these will succeed, so expect some further movement in quarantine requirements soon.
Global warming is definitely occurring. While the UK suffered its hottest day on record in July, and England had the driest month of all time, also in July, here in Hong Kong we too set new records. The heatwave in July was the longest on record, with temperatures not going below 28C, day or night for 30 days, and daytime temperatures exceeding 35C frequently. Thank goodness for air conditioning!
Stewart Aldcroft aldcroft@netvigator.com
A long time Hong Kong resident and a veteran of the Asian asset management industry, Stewart Aldcroft also serves on FBC’s Advisory Council. Future iterations of his musings from the Far East will explore, amongst other things, trends in fund governance in the region.
For additional reading:
The Hong Kong Securities & Futures Commission has been busy issuing new reports and information. Their Annual Report 2021-22 is stocked full of industry data, where their Asset and Wealth Management Report 2021 focuses data on the fund industry. Both are available online and make interesting reading.
Of particular interest is the announcement in early July, that Ashley Alder, the CEO of the SFC is leaving to become Chair of the FCA in London, in January 2023 No doubt there will be many applicants to replace him as the job search is open and worldwide.
Not to be outdone, Singapore Monetary Authority (MAS) issued its own Annual Report in mid-July, and we can expect to see the Singapore version of the Asset and Wealth Management Report for 2021 issued soon.
