Our Opinion: 2022

Will Singapore take Asia’s crown?

China’s state news agency, Xinhua, recently reported that “since Hong Kong’s return to the motherland in 1997, its financial market has evolved… with remarkable progress made in the banking system, capital market, as well as the foreign exchange market.”

Since July 1997 the value of the local stockmarket has grown from HK$4.6trn (£490bn) to HK$38trn (£4.04trn) today. The city was ranked third in the latest edition of the Global Financial Centres Index, behind only New York and London.

Yet international business is souring on Hong Kong. The territory still has strengths in a convertible currency, a bustling port and mechanisms that allow international investors to gain exposure to the Chinese market. But harsh Covid-19 rules and the erosion of the rule of law mean that, since the start of the year, more than 130,000 people have left. In the future Hong Kong will become less international and closer to China, both economically and culturally.

You now need to be fairly determined to travel to Hong Kong because of strict entry requirements and quarantine. In 2019, 70 million passengers passed through its world-class airport, but this figure had fallen 98% by last year. Bankers are are businesses who used to enjoy all the city had to offer are now looking elsewhere in Asia.

Many of the Asian financial hubs that want to compete for the business Hong Kong is leaving behind have their own problems. South Korea’s reputation for poor regulation and high taxes has deterred financiers. Tokyo offers political stability and good public security, as well as an excellent education system. But Japan’s complex and heavy tax system is deterring many of the hedge funds relocating from Hong Kong. Unlike Hong Kong or Singapore, Japan also taxes capital gains, providing another huge disincentive  to the finance industry.

As China grows more authoritarian, the chances of Shanghai resuming its pre-1949 role as a global hub are far less likely. Instead, Singapore looks best placed to capitalise on Hong Kong’s woes. The city-state boasts an effective and predictable government and its geopolitical neutrality allows it to act as a hub for both Western and Chinese capital and businesses. It also has a reliable legal system and a business-friendly regulatory environment – things that Hong Kong is losing. Simple laws for establishing trusts saw Singapore surpass Hong Kong as a hub for regional wealth management in 2017, with $3.4trn of assets under management in 2020.

Yet when it comes to capital markets and investment banking, Hong Kong remains top, with nearly $5trn of listed stocks compared with just $700bn in Singapore. For now.

1st August 2022