Hong Kong’s financial sector is seeing a rebound driven by a surge in fund inflows and initial public offerings, even as the city struggles to shake off the pandemic and controversy surrounding a new China-imposed security law.
As the coronavirus hit Asian markets during the first quarter of 2020, the net asset value of Hong Kong-domiciled public funds fell by 14% to HKD 1.1 trillion ($138 billion), with net outflows of HKD 16 billion ($2 billion) compared to the previous quarter, the Hong Kong Securities and Exchange Commission said in a report Tuesday.
However, the agency said that Hong Kong’s financial sector has started to bounce back, with an increase of 12% of the net asset value of Hong Kong-domiciled public funds to HKD 1.2 billion billion (US$155 billion) and net fund inflows of HKD 27 billion ($3.5 billion).
The regulatory body also pointed to a thriving IPO market during the first half of 2020 as a sign of the city’s financial resilience. IPOs in Hong Kong raised HKD 92.8 billion ($12 billion) during the first half of 2020, according to the agency.“The performance of Hong Kong’s financial markets in the first half of 2020 showed that they remain resilient,” said Ashley Alder, CEO of the Securities and Futures Commission.
This year’s IPO activity in Hong Kong is up 25% from HKD 69.2 billion ($8.9 billion) during the same period last year, according to accounting firm KPMG.
Similar to markets elsewhere in the world, the Securities and Futures Commission said that Hong Kong has also seen a surge in securities trading this year.
Average daily turnover in the securities market increased 20% year on year to HKD 11.5 billion ($15.2 billion) during the first half of 2020. Daily futures and options trading stayed flat at an average of about 1.2 million contracts per day.
The agency also detailed activity in the Hong Kong securities markets in 2019.
Investment and fund managers saw a 20% increase in assets under management in 2019, providing the sector with extra leverage to weather this year’s crises. Asset and wealth managers’ assets under management reached HKD 28.7 trillion ($3.7 trillion) by the end of 2019, according to the commission.
“Hong Kong’s asset and wealth management business posted strong growth in 2019 despite the challenges facing global markets, and we remain committed to further developing Hong Kong as a premier global asset and wealth management center,” Alder said.
More Hong Kongers got jobs in wealth management last year, too — at the end of 2019, 43,631 Hong Kong residents worked in the industry, representing a 2% year-over-year increase, according to the report.
Beyond coronavirus-related lockdowns that have roiled markets and caused gross domestic product to fall in virtually every world economy so far this year, Hong Kong’s financial sector also faces tough decisions following China’s implementation of a draconian national security law that critics say curtails free speech and self-government in the semi-autonomous city-state.
In response, banks including HSBC and Standard Chartered have doubled down on China, publicly expressing support for the national security law at the expense of potential business and goodwill in the U.S. and Europe.
Others, such as investment banks Macquarie of Australia and Nomura of Japan, are scaling back their Hong Kong operations, and the U.S. has imposed sanctions on several Hong Kong and Chinese officials.
Meanwhile, Taiwan is setting its sights on overtaking Hong Kong as an Asian financial hub, pursuing closer economic ties with the U.S. and seeking to lure skilled workers from Hong Kong concerned about the national security law.
Yet closer integration with China can be lucrative for Hong Kong’s financial class.
Building on the surge of IPOs recorded in the first half of this year, Chinese fintech Ant Group is currently pursuing an IPO dual-listed in Hong Kong and Shanghai as soon as this fall. The company is reportedly seeking a valuation of more than $200 billion, which would make it the most valuable startup company in the world.