Investors uncertain on Hong Kong's future as financial hub - M&A Forum

“The PMI is down, sentiment is down, visitor arrivals are down; real estate, retail and tourism are the most impacted sectors; and HIBOR is going up. What does that mean? Risk is heightened,” Raghu Narain, head of investment banking for Asia Pacific at Natixis, told the China M&A Forum. “But the reality is that 60% of global equity and bond raises by Chinese companies from 1997 to 2018 have come from Hong Kong. It’s not going anywhere. [Hong Kong] will be the gateway it has always been.”

He accepts “there will be interim volatility until this geopolitical stuff gets sorted out,” but companies still value the territory as a tried and tested financial center and they are finding ways to navigate near-term obstacles. 

Questions remain as to what happens in the long term. The protests – which were triggered by now-withdrawn extradition legislation but have grown to encompass a variety of grievances with the Hong Kong and Beijing governments – are now into their fourth month. The slump in business sentiment and economic activity has been accompanied by a slump in IPOs and some aborted PE trade sale processes.

Frank Jin, an executive director for Asia Pacific M&A at Morgan Stanley, agreed that Hong Kong’s well-established investor network and the fact that so many banks have regional headquarters there rules out an immediate shift. However, he said that a gradual shift over time – whether it is to Singapore, Shanghai or Shenzhen – is “not necessary, but possible.”

“What really makes Hong Kong as a financial center is the collection of people who happen to be living there, and there’s so much momentum there. And it’s the same for New York and London – that’s why Brexit is a huge challenge for London as a financial hub,” Jin added. “It’s question mark whether there will be that impact on Hong Kong. It is too soon to make long term decisions based on three months of [protests].”

According to AVCJ Research, approximately 530 private equity and venture capital firms had a presence in Hong Kong as of year-end 2018, including 400 that used the territory as a regional headquarters. They – and other investors – are supported by more than 230,000 people employed locally across banking, financing, legal services, and accounting, auditing and tax consulting. This work generated over $140 billion in business receipts in 2017, government records show.

Tax remains a major draw for Hong Kong, given the flat income tax rate and zero capital gains tax (although the government has indicated it would like to tax carried interest). Jin observed that “all the PE guys are in China, but they live in Hong Kong” because of the tax advantages over the mainland’s progressive income tax regime and 20% capital gains tax levied on individuals.

In this way, the financial implications of leaving Hong Kong are entwined at personal and institutional levels, creating an arguably even stronger impetus to stay. Nevertheless, long-term caution is advised – even though, some strategic forward thinking aside, financial investors can do little but wait and see what happens. “Ultimately this is a political issue, not an economic issue; the economy follows the other issues, whether they get resolved or they don’t,” Jin said.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Regulation
• Investments
• GPs
• China
• Hong Kong (China)
• M&A
• Natixis
• Morgan Stanley
• AVCJ Events