Hong Kong’s Reality: A Rise In Regional Relevance

Since last year I’m regularly asked by clients, friends and family about how things have changed in Hong Kong since the national security law was introduced by the Chinese government. The outside media highlighted much of the negative, but as someone who has spent most of my life living around the world, including for over a decade here in Hong Kong, I found it a poor reflection of the reality here. On the contrary, day-to-day life on the island is no different than before, and with tongue firmly planted in cheek, I have bigger issues dealing with my teenage daughters.

I can only see a bright future for the city. There is an incredible influx of capital entering the region and Hong Kong is ideally suited to play a pivotal role. I note this has less to do with the geopolitical situation and more to do with a significant rise in relevance for the Asian economy as a whole. Of course, with China at the forefront.

It is impossible not to be impressed by the transformation of Asia’s economies. I’m from Latin America and the economic story there forever seems to be two steps forward, then three steps back. Compare it to the rapid-growth examples of China, Japan, Korea and Singapore, which are now being followed by other countries, particularly in South East Asia. 10 years ago tech companies in Asia that were raising venture capital were something of an exception, but the region has become an innovation hub such that a critical mass of capital raises is occurring, attracting increased international investment attention. And deservedly so.

For some time I lamented its decline in economic relevance. The industries which had made it well known, such as trading, logistics, shipping, financial and professional services had found alternative onshore hubs like Shanghai, Beijing and Shenzhen (just across the bridge from HK) as mainland China opened itself to increased capitalist activity. Similarly, Singapore emerged as a significant competitor for international investment and as an alternative location for financial services firms to base their operations.

However, Hong Kong is staging a huge comeback as an intersection for global capital markets, which to my mind, will see it lead other Asian financial centers like Tokyo and Shanghai in the near-to-medium term, and compete directly with New York and London for global leadership.

The primary catalyst for this change in Hong Kong’s fortunes is China and it’s really not hard to see why, thanks to the stunning digital transformation of its economy over the last two decades. The MSCI China Index is the youngest in the region, demonstrating the speed of new company formation there. The average number of years companies have been listed on the index is 7 years compared to 20-years plus for the MXAPJ.

Internet companies account for about 45% of the China Index. Up from around 5% 10 years ago. Also, Washington’s stance towards the PRC has led to the Hong Kong Stock Exchange to become the preferred location for public equity offerings for mainland companies. $52 billion was raised there in 2020 and already in 2021, over $16 billion. Kuaishou, a company headquartered in Beijing with an app similar to Snapchat and Instagram, raised $5.4 billion in February. A record for a Chinese internet company on the HKSE.

You wouldn’t think it if you only watched Hong Kong via sensationalist media, but financial services firms are moving in and the ones already here are increasing their presence. The Government is obviously still sensitive to the events of the recent past, introducing a number of tax breaks to entice both money to stay and new money to enter. And it’s working. Paul Chan, Hong Kong’s Financial Secretary, now claims the special economic region is second only to New York as a “billionaire city.”

It’s certainly why MCM is here. In totality, the region’s rise in global relevance offers a vision of new opportunities for Hong Kong. For us, the island is the perfect place to broker significant deal value for our clients and investors.