Wednesday, September 30, 2020

Spear's "Special report: Is Hong Kong’s status as Asia’s financial capital in danger?"

From Spear's Magazine:

The recent unrest in Hong Kong has put its status as Asia’s financial capital in danger. Can it survive this turbulent spell?
It’s a 14-minute journey from Futian station in Shenzhen to West Kowloon station in Hong Kong on one of China’s new high-speed trains. This section of the line, which connects to Beijing 1,500 miles away, was opened in 2018. As a result you can leave the former British colony after breakfast and be in Tiananmen Square in time for dinner.

Of course, this isn’t the only way the centre of Communist Party power has got much closer to the lives of people of Hong Kong of late. The introduction this summer of the National Security Law – permitting the extradition of Hongkongers to China with minimal judicial oversight – has subverted the Sino-British Joint Declaration of 1984 and demonstrated once and for all that Beijing is not interested in playing nicely.

‘It is one of the biggest assaults on a liberal society since the Second World War,’ opined the Economist, under the headline ‘A safe harbour no more’.

Eight minutes’ drive from the Kowloon terminus is another sign of the times: a branch of UBS, the Swiss private wealth giant, which opened in 2016. It’s no coincidence that it’s here, even though UBS already had its main Hong Kong hub in the IFC Tower 2 in Central, across Victoria Harbour.

‘They discovered it was too intimidating for Chinese clients to come over to Hong Kong island and go to the IFC on the 52nd floor,’ says one financial services veteran. A senior investment banker, who asks not to be named, speculates that UBS may have been responding to a different impulse on the part of their mainland customers: ‘I wouldn’t be surprised if some of them said, “I don’t want to go that effing high-profile IFC, where the Hong Kong Monetary Authority is – let’s do it more discreetly in Kowloon.”’

Whatever the reason, UBS isn’t alone: Credit Suisse and Morgan Stanley have both relocated to Kowloon from Central. The shift of these institutions all follows the centre of financial gravity in Asia.

According to a family offices presentation from a trio of Hong Kong financial bodies, including that monetary authority, the special administrative region is now part of the Guangdong-Hong Kong-Macao Greater Bay Area, a region with a population of 70 million – more than greater Tokyo, the San Francisco bay area and New York City combined – and home to 17,000 UHNW families.

But that’s a fraction of the 80,000-plus UHNW families in Greater China, according to the presentation. So it makes sense that ‘the biggest teams in private banking in Hong Kong are all ones covering mainland China’. The jurisdiction banks just north of $3 trillion, of which private banking and wealth management account for $1 trillion.

In terms of cross-border assets, it is second only to Switzerland, managing $1.2 trillion to Switzerland’s $2.3 trillion. Singapore, long snapping at Hong Kong’s heels, is third on $1 trillion.
Unsurprisingly, the Hong Kong marketing material highlights in bold sections of Article 112 of the Basic Law: ‘No foreign exchange control policies shall be applied in the Hong Kong Special Administrative Region. The Hong Kong dollar shall be freely convertible… The Government of Hong Kong Special Administrative Region shall safeguard the free flow of capital.’

Yet despite the recent bad news, you don’t have to look far to find those who will stand up for Hong Kong. ‘Warren Buffett says never bet against America,’ says British-educated Patrick Tsang, third-generation principal of a Hong Kong-headquartered family office, Tsangs Group.

‘I would say to everyone, don’t bet against Hong Kong.’ Tsang accepts that the unrest will have caused business to divert to Dubai or Singapore, but he backs the dynamism of the economy and the work ethic of the people....