Letter from Hong Kong: “Hong Kong is Back!”

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“Hong Kong is Back!” said John Lee the Hong Kong Chief Executive at the Global Financial Leaders Investment Summit held early November. 

Even with the disruption of an unseasonal typhoon, that passed through at the same time, almost 200 “leaders”, i.e., CEOs, Chairmen and Presidents, of global financial institutions, mainly banks and asset managers, attended the 3-day summit, to see for themselves that after almost three years of lockdowns and disruptions caused by covid, Hong Kong is determined to rejoin the world, in opening up, allowing business visitors and tourists to return with minimal restrictions.  

Whilst not much momentous was discussed, and it would be unlikely that any major decisions were taken either, the first week of November concluded with a return of the Hong Kong Rugby Sevens, a world-famous tournament also held over three days, that has often been dubbed “The biggest party in Asia”.  

So, is Hong Kong really back, or is it all posturing for the benefit of the world’s media?  

In truth, Hong Kong is open again. For most arrivals, there are no longer any quarantine restrictions. Passing through Hong Kong International Airport takes less than 60 minutes for visitors and 30 for locals. More airlines are offering flights to and from Hong Kong, but the schedules are still at only 20% or so of pre-pandemic levels. Hotels have room vacancies, and prices are reasonably competitive. In reality, not many visitors have actually started to return yet. Chinese Mainland visitors, who in 2019 represented around 45 million of the nearly 50m arrivals, are still heavily restricted from travelling.  

The next big event will be the Asian Financial Forum in early January 2023, which promises to be a bigger, better event than previously, and again, will be held for the first time in three years.  

Mutual Fund Flows 

It has been widely reported that mutual fund flows in the Asian region have badly stalled in 2022. That’s hardly surprising, given the lacklustre performance of many local stock exchanges, and especially the large falls in China and Hong Kong, taking their markets down to 13+ year low points. Concerns over the many geopolitical troubles, economic problems, inflation and interest rates, have all combined to restrict the rampant sales that occurred in many of the last five years. But while this has been going on, the major banks have been heavily gearing up their wealth management activities, hiring many thousands of new staff, training and educating the new staff to become familiar with the requirements to provide wealth management advice, building and opening new wealth management centres, all in the expectation of there being a strong recovery in 2023.  

Banks remain the dominant distribution outlet for mutual funds, consistently representing 75%+ of aggregate volumes in Hong Kong, Singapore and Taiwan. And of that volume, at least 80% has usually been into UCITS funds from Luxembourg or Ireland. It has been estimated that around 15% to 20% of the aggregate assets under management (AUM) of UCITS funds now comes from the Asian region.  

It is therefore rather surprising that Asian region representation on the Boards of UCITS funds in both Luxembourg and Ireland is so poor. In a “snapshot” among the top 10 fund complexes, based on sales in the region, there is little or no Asian representation that is independent of the business. Those that are on Boards are generally the senior employees of the firms. Why is this an issue?  

  • The speed of regulatory change is increasing. But not all changes are relevant or needed in all markets. Whilst the local office or lawyers can advise, the benefit of an Independent Non-Executive Director (INED) to provide relevant information and guidance on these issues can be invaluable. 
  • IOSCO as well as many global regulators, have increased expectations of funds’ boards to be more representative of their population of investors. They expect sufficient and appropriate independence from the Managers. Clearly, having staff or ex-staff on boards doesn’t meet that expectation. 
  • Previous concerns regarding the cost of in-person board meetings in Dublin or Luxembourg are no longer valid with the widespread adoption of Zoom technology for communication globally. 


If Hong Kong is “open”, Singapore can claim to be even more “open”, in the recovery from covid. Singapore reopened by removing all quarantine restrictions in early 2022. As a result, there was an immediate return of tourists and business visitors. Activity levels have risen to almost pre-pandemic levels. I’m often asked, “If Singapore can recover so quickly, why can’t Hong Kong also?”. In part, I think a problem in Hong Kong, is that the local population are less convinced of the level of consistency in decision making by the Hong Kong Government, believing there can still be influence from Beijing on the key decisions on whether to impose quarantine or not. Time will tell whether the John Lee Government in Hong Kong can be sufficiently independent, and/or able to make more of its own decisions. 

“Family Office Wars” 

Both Hong Kong and Singapore are in a battle to win Family Offices being set up in their jurisdictions. Both Governments, via their respective financial services agencies, have become very active globally in trying to win Family Offices to set up. Both have offered significant tax exemptions and benefits. Both have banks, wealth managers and especially private bankers, being strongly encouraged to set up Family Offices for their clients. Both have created fund products such as Open-ended Fund Company (OFC) in Hong Kong or the Variable Capital Company (VCC) in Singapore, with subsidized legal fees to enable quick, easy and cheap establishment.  

To date, Singapore has been a clear winner. Their comprehensive tax benefits have been better than those in Hong Kong, forcing the Hong Kong Government to recently make further enhancements to bring their respective tax exemptions up to Singapore’s level.  

Many Mainland Chinese families, who are regarded as a prime target for this business, have preferred setting up in Singapore in the belief that Hong Kong is now a part of China and thus is not sufficiently distant for assets in Family Offices to be beyond the reach of China, should that eventuality ever occur.   

End of Year celebrations 

Finally, as is usual in Hong Kong and Asia, Christmas arrived in the shopping malls by late October. And as we get closer to late December the crescendo of (mainly) electronic Christmas tunes rise. It’s in the elevators that most often annoys, simply because there is no escape, and it sounds so cheap. But we also get to see many buildings, especially those facing the famous Hong Kong Harbour, get dressed in colourful lights and decorations, aiming to “warm our hearts” in time to celebrate and enjoy the festivities. The skill of these decorators of buildings, is that soon after Christmas, and with a few tweaks here and there, much the same decorations can be changed to celebrate Chinese New Year 2023, exactly four weeks later, which in this part of the world is an even bigger event.  

Merry Christmas, Happy New Year, Seasons Greetings to all readers. 

Stewart Aldcroft