For over a year now, as protests in Hong Kong reached their peak and began to turn violent, writing off Hong Kong seemed to have become quite fashionable. Countless articles questioned Hong Kong's autonomy and its significance as a global financial and trade hub. The US decision recently to revoke Hong Kong's preferential trade status due to the "National Security Law" and impose OFAC sanctions on some individuals has exacerbated this "bait".
Beyond sensationalism, there are important reasons to believe that Hong Kong will continue. Hong Kong dominates the IPO market outside the United States. In the first half of 2020, no exchange outside the US completed more IPOs or raised more funds through public offerings than the Hong Kong Stock Exchange. In 2019, the Hong Kong Stock Exchange attracted 161 IPOs with a market value reaching $40.28 billion. The total market capitalization of the Hong Kong Stock Exchange is HK$39.45 trillion, more than six times that of its Asian competitor Singapore. Hong Kong is the most important overseas financing location for mainland China. Since 1997, IPOs by Chinese companies in Hong Kong have exceeded $350 billion. This is roughly equivalent to the total financing amount of Chinese enterprises on all other major exchanges combined.
Hong Kong is the center of the Asian hedge fund industry, with assets under management exceeding the sum of Singapore, Japan, and Australia. The idea of investment managers moving to high-tax jurisdictions like Japan or Australia seems unlikely. To attract more onshore private equity funds, Hong Kong is introducing a new limited partnership fund regime, which we will discuss in the newsletter section. Prior to this, the open-ended fund company (OFC) regime was implemented in 2018. Singapore had earlier successfully launched the Variable Capital Company (VCC) scheme.
Nearly two-thirds of China's foreign direct investment (FDI) and outward foreign direct investment (FDI), as well as most financial investments, are initiated and intermediated by Hong Kong. Over 70% of RMB international trade is settled through Hong Kong.
In the absence of any real competitors in the region, the decision to abandon investment in Hong Kong seems to be a consideration of individual companies rather than a general consideration across industries. Our offices in Hong Kong and Singapore can provide assistance in both jurisdictions.
