Practical analysis for investment professionals
05 March 2012

Hong Kong Rising

Hong Kong’s financial services sector has long been a key driver of its economy and the Asia-Pacific region at large. In recent years, even as the U.S. and European economies have been struggling, Hong Kong’s stature has only been rising, a financial renaissance of sorts fueled by both the vibrancy of Asia’s economies and Hong Kong’s role linking China with the West.

As Hong Kong’s secretary for Financial Services and the Treasury, K.C. Chan, recently told Institutional Investor magazine, “Hong Kong has been entrusted with greater responsibility as a financial center by the global community since the financial crisis.”

In just a few days, Professor Chan will join a distinguished roster of nearly a dozen speakers gathering in Hong Kong for the inaugural CFA Institute Asia Pacific Investment Conference, which will address a number of important regional economic and financial themes, ranging from the investment thesis for China and the next chapter in the Asian economic story to specialized topics like exchange-traded funds, Asian real estate, and wealth management trends.

Hong Kong is in many ways the perfect venue for the event. As II notes in its article, the number of banking and financial firms with regional headquarters in Hong Kong rose to 150 last year, up from 113 in 2007. In addition, jobs in the local finance and insurance industries have been designated one of the “four pillars” of Hong Kong’s economic growth — and increased by 29.2% between 2002 and 2010. Last June, the Hong Kong government announced that the city-state had six financial planners for every 10,000 citizens — the highest number per capita in the world. It is perhaps no coincidence that The Hong Kong Society of Financial Analysts Ltd., which is supporting this year’s Asia Pacific Investment Conference, is the fourth largest of the CFA societies.

Hong Kong authorities have taken a number of other important steps recently to make the city-state more attractive to businesses. As Institutional Investor reports in its article:

In the past five years, the government has provided an exemption from stamp duties for certain exchange-traded funds — namely, those tracking indexes making up less than 40 percent of Hong Kong stocks. It has also established a network of agreements with 17 major trading and investment partners to eliminate double taxation. Those moves came on top of a number of established tax advantages, including no capital gains tax on the sale of shares of private companies, no tax on dividend income and no taxes on Hong Kong transactions profits for offshore funds.

Even during a slump that has affected IPO markets around the globe, Hong Kong is still the leading marketplace for public offerings, and has managed to defend its status as the world’s largest IPO market — beating New York — for the past three years. Not only did Hong Kong lead the world in IPOs last year, it also displaced New York and London from their top spots on the World Economic Forum’s index of financial market development. The city’s ranking in 2011 marks the first time that an Asian financial center has led the 60-country index.

Meanwhile, Hong Kong’s financial ties to mainland China continue to grow stronger, bolstering its status as a financial center. In January, for example, the China Securities Regulatory Commission announced that it would relax controls on Hong Kong listings of Chinese companies — and push for issuance of yuan-denominated shares in the offshore renminbi market. Hong Kong has responded to China’s encouragement with its own efforts to further develop this market. In February, for example, Hong Kong’s first renminbi-denominated gold exchange-traded fund began trading on the Hong Kong Stock Exchange, and Professor Chan has said that more renminbi products will be listed in the future. The market for offshore renminbi-denominated bonds, known as dim sum bonds, is also developing. For more perspective on China’s nascent fixed-income markets, see “Dim-Sum” on the Financial Menu.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Peter M.J. Gross

Peter M.J. Gross was an online content specialist for CFA Institute, where he has managed blogs for the CFA Institute Annual Conference, European Investment Conference, and Middle East Investment Conference. Previously, he worked at Hampton Roads Publishing Company and at MFS Investment Management. Mr. Gross' articles have been published by Enterprising Investor, City A.M., Seeking Alpha, and The Hook, and his work has been highlighted by Real Clear Markets. He holds a BA degree from Connecticut College.

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