Hong Kong’s role as wealth management hub strengthened by growing investor demand for diversification

September 23, 2020
SCMP Updates
Though investor concerns over the long-term impact of the national security law have intensified in the past two months, asset managers and financial advisors say most of their high-net-worth clients continue to stay put while being cautiously optimistic.

At an SCMP webinar on whether Hong Kong can maintain its role as a financial hub under the national security law, Jessica Cutrera, a founding partner at The Capital Company, said some of her clients had begun to diversify assets to other booking centres amid political risks stemming from the national security law and rising US-China tensions.

“The national security law really has an impact on how we run our business and how we support clients and families in both Hong Kong and around the region. Some have expressed concerns over where their assets are booked; some have switched their booking centres to Switzerland, Singapore or New York,” she said.

“They are mainly concerned about the impact of growing US-China tensions as well as the changes to Hong Kong’s legal framework.”

When a client opens an account with a multinational bank or private bank, he or she can choose to have the assets held in custody by the bank in a jurisdiction where the bank has a branch. That jurisdiction, known as a booking centre in asset management terms, regulates the assets under custody, advisors as well as the financial institution, she explained.

Though there is a shift that was not seen prior to the implementation of the national security law, the proportion of her clients moving money away from Hong Kong remains small so far, said Cutrera.

Alvin Ma, managing director and partner at Axiom Investment Management, said despite more queries about the situation in Hong Kong, there had not been a big change to his business. Along with Zurich and Singapore, Hong Kong remains as one of the most preferred financial centres investors would like to have their assets booked with, he said.

But as opposed to other financial centres, Hong Kong’s proximity to mainland China, especially the Greater Bay Area (GBA), secures its unique position. After all, private banking is a people business, relying a lot on personal relationships and face-to-face connections.

“The majority of our relation managers are native Chinese. Many of them even come from the same provinces where our clients grew up. They speak their dialects, share their cultures, and it’s these kinds of ties that allow us to cultivate client trust.”

He said the proposed launch of Wealth Management Connect would solidify Hong Kong's role as a wealth management hub. Under this scheme, Hong Kong and Macau residents can buy onshore wealth management products sold by Chinese banks, while GBA residents can invest in products sold by Hong Kong and Macau’s banks.

“Industry players still want to get a share of China’s big and growing pie as high-net-worth clients in the country have a strong demand for asset diversification. These people, many of them SME owners, are like those of Hong Kong in the 1990s. They are actively looking for opportunities. The only concern I have is lack of resources, talent in particular.”

US-China tensions are pushing US-listed Chinese tech firms to come home, thereby buoying the local stock market and investment activity, said Robert Lee, CEO of Grand Capital. As many as 93 companies have listed in Hong Kong so far this year, having raised about HK$160 billion of funds. Though this year is not going to be a record-breaking year, he believes Hong Kong is largely resilient as a key IPO destination. “There are also big-ticket IPOs in the pipeline, which will be a big boost to the market. [Besides US-China tensions], another contributing factor is the listing reform made by Hong Kong’s regulators keen to attract new economy and biotech companies to list in the city.” The introduction of Weighted Voting Rights Structures or dual-class shares is also critical to making Hong Kong the preferred listing destination for these sectors, he added.

Some ten years after the legislation of its version of the national security law, most Macau residents do not even feel the existence of such a law. The only exception is when political activists from Hong Kong are denied entry to Macau because of potential violations, said Professor Richard Hu, dean of the faculty of social sciences at the University of Macau.

“Compared with Hong Kong, Macau's experience with the legislation was much more smooth. Although the wording written in the Macau version is similar to that now imposed on Hong Kong, Macau’s situation can’t be compared directly to Hong Kong since we don’t have as many foreign business interests and business travellers as Hong Kong.”

If history is any guide, the crisis of confidence facing some Hongkongers would mirror what happened in the mid-1980s, he noted. “People and capital came back eventually during the first few years after the handover, and so will they this time.”

The SCMP Conversations: National Security Law webinar playback videos are available for SCMP readers at 40% discount. Register Now.

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