At a time of considerable economic upheaval globally, Raymond Yeung, chief economist for Greater China at ANZ Bank, had words of hope at ACCA Hong Kong’s recent annual conference. ‘The global economy is currently undergoing a significant transformation,’ he said. ‘However, crises also present opportunities, and Hong Kong will find its own opportunities within it.’
Part of that optimism comes from a key focus of China’s 2021–25 five-year plan to strengthen Hong Kong SAR’s role as an international financial centre, particularly as a global hub for asset management and offshore renminbi business. The government has rolled out a series of initiatives to diversify Hong Kong’s capital market and create broader investment opportunities.
Global outlook
With all economies now placing greater emphasis on national security, the global financial system is shifting towards a multipolar regime. ‘We are heading towards deglobalisation, and this is inevitable,’ Yeung said.
While the US Federal Reserve is maintaining a ‘high and long’ position on interest rates, with robust US growth, ‘China is experiencing deflation, with a negative producer price index and a consumer price index below 1%, indicating a recessionary state’, Yeung said. He believes, though, that China could still enjoy good economic performance through export growth facilitated by global electronic supply chains.
The result of China’s economic slowdown coinciding with an overheating US economy will be a divergence in the inflation and interest rates outlook of these two major economies, which could have a significant impact on Hong Kong. In the long run, Yeung thinks China’s interest rates will remain low and the interest rate differential with the US could impact the renminbi exchange rate.
‘Interest rate differentials prompt onshore investors to seek offshore yields’
It is a situation that creates an opportunity for Hong Kong to become a major treasury centre for mainland China, with the onshore-offshore yield differential affecting cross-border operations. ‘Interest rate differentials prompt onshore investors to seek offshore yields,’ Yeung said.
With sanction risks and geopolitical challenges on the rise, he identified another opportunity for Hong Kong coming from countries exploring new global currency and payment options that are free from political risks. Exploring Project mBridge as an alternative to Swift could help by facilitating cross-border payments and leveraging blockchain technology.
Digital advance
To secure its position as an international finance centre, Hong Kong will have to keep up to date with the evolving area of virtual assets. As they gain traction, Hong Kong is upgrading regulation to foster their development.
During a panel discussion, Elizabeth Wong, director of licensing and head of the fintech unit at the Hong Kong regulator the SFC, said: ‘Since 2018, the Securities and Futures Commission has been regulating virtual asset activities, with a particular focus on centralised virtual asset trading platforms.’ To protect investors’ interests, the SFC has recently introduced a new licensing regime for centralised virtual asset trading platforms operating in Hong Kong.
Vivien Khoo, senior adviser at digital wealth management platform StashAway, said: ‘This regulatory regime is a significant first step that brings clarity to the market.’ Khoo believes that regulatory clarity can boost international investors’ confidence in Hong Kong as a whole both in wealth management and in digital assets.
As well as driving the development of virtual assets through blockchain and tokenisation, technology can underpin improvements in banking, which is a major sector for Hong Kong. Raymond Yung FCCA, independent non-executive director at Citibank (Hong Kong), said: ‘Retail banks can achieve cost reduction through digitalisation. Our retail customers can also gain better experience with digitalisation.’
Yung believes corporate banking can gain from tech. ‘For example, regtech can improve compliance efficiency and reduce costs.’ He added that straight-through processing can streamline product generation, reporting and settlement, minimising the need for human input and reducing error rates.
Capital markets
One area struggling this year is capital raising. Ernest Wong FCCA, president and group CFO at financial services company KVB Holdings, said that IPO performance over the past 12 months had been muted.
In the past, listings of state-owned enterprises (SOEs) supported Hong Kong’s market capitalisation. However, many companies reconsidered their listing plans as a result of geopolitical issues and the sudden cancellation of the initial stock exchange listing of Ant Financial in late 2020, leading to a drop in IPO activity generally.
Cooperation with ASEAN and BRIC countries is likely to generate many capital market opportunities
Yung said: ‘The involvement of retail investors is not enough, resulting in limited post-market secondary trades. On the other hand, the volume in Nasdaq is huge because the markets there are mature, with many players involved in day trading and different trading strategies.’
He added that future cooperation with ASEAN and BRIC countries was likely to generate many opportunities for the Hong Kong capital market, especially in non-US dollar trading.
By leveraging fintech developments, embracing technology in the banking sector, and exploring opportunities in emerging markets, Hong Kong can ensure its relevance and competitiveness in the ever-evolving global financial landscape.
More information
Read more articles from the ACCA Hong Kong annual conference: ‘Hong Kong’s vibrancy drives recovery’ and ‘Hong Kong boosts innovation credentials’
