Stewart Aldcroft is a Hong Kong resident, veteran of the asset management industry and member of the FBC Advisory Council.
As I write this letter from my lofty perch on an island in Hong Kong overlooking the South China Sea, I am conscious that many readers may never have visited our tropical paradise, or if they have, it might have been many years ago, and especially before Covid 19 disrupted the globe.
It therefore might be worth mentioning that, despite the frequent negative articles that have appeared in UK newspapers such as the Financial Times, the Times and the Daily Telegraph in particular, Hong Kong is not “finished” as some would have us believe, nor has it stopped being attractive to visitors from overseas, with numbers now exceeding 3 million per month and rising.Opinion pieces have appeared in these and other publications from former residents, economists and others, trying to capture sensational headlines and providing their take on how, as a result of the many changes that have occurred in recent years, this will lead to “the end of Hong Kong” as we know and love it. Somewhat galling is that those most negative are also those that had previously lived and worked here, made fortunes and taken it with them to wherever they now reside. It sometimes seems that it is only those still resident in Hong Kong who have positive comments and opinions. What gets forgotten in the rhetoric and exchanges is that for 175+ years Hong Kong has seen perpetual change. Its people are among the most competent in the world at dealing with change, and more often than not, prospering as a consequence. The end of one era often leads to the beginning of another.
China, Politics and Budgets
March has been a political month, both in China and Hong Kong, and also a Budget month in Hong Kong and the UK. The result of this has been a greater focus on what needs to be done to drive economies, to improve livelihoods and put more money in people’s pockets to be spent.
China held the Annual Parliament “Two Sessions” for both the Chinese People’s Political Consultative Conference (CPPCC) and National People’s Congress (NPC) in early March. During these political leaders are required to provide “work reports” and then forecasts for the future are given. Of note, on the economic front, is a plan to achieve GDP growth of 5% in 2024, which may prove challenging, as well as to increase employment numbers, especially for the under 25s and fresh graduates, where unemployment recently reached 25% or more. Over-hanging this will be the continued need to sort out the dire property market where corporate debt levels exceed US$500billion and bankruptcy or liquidation calls are being made frequently for the largest debtors.
In Hong Kong our annual Budget was announced the week prior to the UK Budget. But unlike in the UK, the Hong Kong Financial Secretary has no political ambitions or elections to worry about and so when he announced, among a number of other measures, a plan to increase tax rates for the highest earners by 1% to 16%, no howls of derision were heard. He also announced removal of a number of different measures (nicknamed “spicy measures”) accumulated over the last 10 years to penalize pro-active trading in property, which will likely please many, as property remains by a long way the biggest investment game in town.
On the political front, the highly contentious “Article 23” legislation for Hong Kong has now been presented to LEGCO by the Government, at the urging of Beijing “to get a move on with it”, and can be expected to be passed in the next month or so. Many may recall the serious protests about Article 23 from 10 or more years ago, and the on-going concerns people have with National Security Legislation (NSL). The reality is that virtually all sovereign nations have their own form of NSL, and that until recently Hong Kong didn’t, thus many have become upset at the thought that this is being imposed upon us unnecessarily. Freedom is a valuable commodity, and any reduction in freedoms needs to be carefully considered. But in the greater scheme of things, the Hong Kong NSL and Article 23 will not make any significant difference to the normal way of life for most of us, except for the troublemakers, who will find themselves facing greater restrictions and probably jail time.
HK vs SG for 200 years
In the 1800s, the British set up Hong Kong and Singapore as trading centres. Both benefited from British colonial rule, Governors, Common Law and British legal systems, British banks and infrastructure to create successful businesses that could trade globally, and attractive tax rates. Both have large natural ports and are located on primary shipping routes.
For almost 200 years, both Hong Kong and Singapore have thrived. They have provided each other with levels of competition that has ensured excellence in business practices and as a consequence great wealth has been accumulated.
The level of competition between both remains strong to this day, with both trying to exceed the other in attracting global companies to set up, for mobile wealth to be brought to the location via family offices or investments.
Bloomberg Intelligence recently (21 February 2024) published an article on “Hong Kong vs Singapore 2024” which for anyone interested in either or both locations is definitely worth reading.
Singapore-bashing in Hong Kong continues daily, with many of the political leaders, especially, aiming to highlight why Hong Kong may be better than Singapore for where you set up and do business. In reality, we all know that both places are centres of excellence in Asia, unsurpassed or unsurpassable by any other of the major cities in the region. The one issue where Singapore scores heavily over Hong Kong is in having infinitely better media relations.
Fund Sales
Mutual fund sales in Hong Kong are an important benchmark for the health of the fund management industry. In 2023 sales numbers continued their decline, with December being the worst month of the year with net redemptions standing at US$1.5bn. But this disguises the fact that sales still amounted to US$3.7bn during the month. Annually, the gross sales of funds in 2023 was US$55.6bn and with redemptions of US$55.2bn, there was a marginal net sales amount of US$187m. This is well down from the numbers of a few years ago, and is probably representative of the poor performance of the stock markets in Hong Kong and China relative to those elsewhere. Nevertheless, it still means there were mutual fund sales of US$55bn+ which surely gives opportunity for most participants with suitable products.
An important note to make is that these figures relate to Hong Kong SFC Authorised mutual funds only, thus exclude ETFs, hedge and alternatives funds, private equity and other types of collective investment. Anecdotal evidence suggests that private funds are capturing record volumes these days as they have become more popular with private banks and wealth managers.
Cash for Residency Schemes
Like many parts of the world, Hong Kong has a scheme to enable wealthy individuals to buy residency permits. For a minimum of HK$30m per person, it is possible to buy a permit to live in Hong Kong. This has tended to be attractive to Mainland Chinese as well as others within the region. This month a few upgrades were made to the scheme that should prove of interest to the global fund management community. In particular, the HK$30m that is required to be invested in Hong Kong is no longer restricted to Hong Kong domiciled investments. Included for the first time are UCITS funds provided they are managed and issued by HK SFC Type 9 License holders. This allows far greater diversification of investment choices, active portfolio management and the potential for better returns. This scheme can be especially appealing for Family Offices setting up in Hong Kong. For those wishing to find out more, IgnitesAsia published an interesting article on 4 March 2024.
Visa-free Access to China
For many, China is seen as impenetrable. It has historically been complicated to gain entry visas to visit, and then when you get there everything is in Chinese (naturally) and English or other languages rarely used except in major cities. These days China is keen to remedy that, and has introduced “Visa Free Access” for nationals from a number of different countries, to encourage more tourism. From 14 March, nationals from Austria, Belgium, Hungary, Ireland, Luxembourg and Switzerland are allowed visa-free access to China. This also anticipates that Chinese citizens will get reciprocal visa-free access to the same countries.
Stewart Aldcroft
