Hong Kong is experiencing a significant decline in its stature as one of the world’s foremost financial centres, as its stock market tumbles and economic growth falters, according to white paper published by the Economist Intelligence Unit (EIU) this week.
Moreover, the “city’s standing has been diminished by China’s stringent crackdowns and its protracted trade war with the US, leading to an exodus of foreign investments and financial experts”.
The EIU’s conclusions appeared in its paper, “The shifts in Asia’s financial hubs”, outlining key developments in Asia’s financial hubs, including Singapore, Hong Kong, China, Japan and India.
Further evidence for Hong Kong’s decline as a global financial hub are the economic woes of mainland China, particularly in the real estate and technology sectors, which have further undermined confidence in Hong Kong’s market.
The amount of money raised from IPOs on the Hong Kong burse has fallen to a 20-year low, with many companies shelving their listing plans due to weak valuations and poor market sentiment.
The authorities seem to be aware of the problems. In August 2023, the Hong Kong government set up the “Task Force on Enhancing Stock Market Liquidity” to review the factors affecting market liquidity, including the listing regime, market structure and trading mechanism.
Yet, the EIU believes that the territory will rely increasingly on the Chinese market. “While it may remain an important regional hub, its status as a global financial centre will severely diminish over the coming years,” it said.
Singapore benefits
One beneficiary is Singapore. The EIU believes that the city-state is well-positioned to attract foreign investment outflows from Hong Kong, and that implementation of well-rounded reforms will make it an attractive destination for long-term investors.
Indeed, Singapore has already solidified its position as an international financial centre, benefiting from China’s crackdown on the rival business hub of Hong Kong, according to the EIU.
Record amounts of private wealth and capital have flowed into Singapore, because of its stability and business-friendly, low-tax market regime. However, it noted that the performance of Singapore’s stock exchange has paled in comparison to the success enjoyed by its private markets.
India and Japan thrive
Meanwhile, India and Japan have benefited from the China Plus One strategy adopted by international investors, as they hedge risks in China by broadening their portfolios to other promising Asian markets.
Yet, the EIU noted that Indian stocks, which have significantly higher price-to-earnings ratios than regional peers, poses a potential risk to future performance, and Japan’s geopolitical situation could be complicated by its alliance with the US, particularly if November’s presidential election results in a more isolationist policy stance.
In conclusion, the EIU believes that capital markets in Japan and India will continue to thrive over the next few years, while “Singapore will mop up much of the financial business that is leaving Hong Kong”.
