'Occupy' could hurt HK's status as wealth hub

With Hong Kong’s political situation still very much up in the air, an exacerbation of political tensions could see Singapore rise above its regional competitor as Asia’s main financial hub, argues Scorpio Partnership.

The protests that began on September 26 had a significant impact on the Hong Kong’s financial district. They prompted several banks to shut branches, enhance security and ask staff to work remotely. The financial district was quick to report business as usual and play down any implications of uncertainty and stressed that what had occurred was nothing more than a momentary blip.

However, the situation is currently far from resolved, with the pro-democracy protesters and the Chinese government engaged in a political standoff. There is a continuous threat of further demonstrations, and even ongoing rumours about the deployment of the Chinese military in the city.

With the international media keeping a close eye on developments in the region and images of the police using tear gas on the protesters having attracted sympathy, any further demonstrations could significantly harm the city’s image as a financial offshore centre.

On top of this, the attractive reputation of Hong Kong as a gateway into China’s market is also coming under threat. While the pending Stock Connect trading link between the Hong Kong and Shanghai bourses, which has been delayed, will likely increase flows into Shanghai and make China more accessible to investors, further protests could reduce liquidity.

Meanwhile, Singapore’s financial ethos of openness, transparency and business integrity has in recent years seen the offshore centre increase in popularity among investors. This is particularly true for the wealth management industry. A 2013 study by consultancy PwC forecast that the Lion City will become the wealth centre of choice for private clients and the world’s leading global financial hub by 2015.

At present, Singapore trails Hong Kong in terms of wealth management. According to the Capgemini/RBC Asia-Pacific Wealth Report 2014, Singapore’s HNW investable assets stood at $523 billion compared with Hong Kong’s $627 billion (see figure).

 

However, an intensification of political demonstrations will only increase the attractiveness of Singapore and could lead to these assets flowing out of Hong Kong, with Singapore being the most attractive and convenient alternative.

The growth of Asia Pacific will only intensify the problem for Hong Kong. The World Wealth Report cited Asia Pacific as the fastest growing region in the world, with the assets of high-net-worth-individual growing at an annualised rate of 9.8%.

So, all eyes turn to Hong Kong and the results of the Legislative Council vote in September 2016 and Chief Executive election in 2017. Whether they lead to further demonstrations remains to be seen.

However, the city must be ready to convince investors and wealthy individuals in general that business will not be affected and assets will remain protected. Otherwise, Singapore may pick up the mantle of Asia’s foremost financial centre.